Your savings account can be used for anything from a vacation to a down payment for your new house. But what about the things that you can’t predict? Your savings account can help cover those unexpected expenses too.
By creating and keeping your emergency fund and knowing how much to keep in a separate savings account, you can remove the temptation to spend that money. Here are some common expenses that will remind you of how important it is to have an emergency fund.
The average amount you’ll spend on fixing your car will likely run a few thousand dollars a year. Consider setting aside $200-$250 every month to cover whatever your vehicle needs. Whether your car needs snow tires or a new timing belt, keeping money tucked away in your savings account means you’ll be back on the road faster.
In the U.S., the number one cause of bankruptcy is medical debt. That means many people are unprepared for the high cost of medical care.
Keeping money in your savings account can help prepare for those costly medical bills. You never know when you’ll have to visit the ER for emergency surgery or whether your child needs unexpected medical care. Also note that if you’re not eligible for a Health Savings Account, you can put aside money for medical bills in your regular savings account.
Whether you’re in an industry that has frequent layoffs or have been in the same job for 10 years, it’s always good to be ready for a job loss. Unemployment benefits may not cover all of your expenses as the dollar amounts and duration depend on your salary, the state you live in, and other circumstances. It may also take you longer than expected to find a new job. Plus, if you decide to quit your job, having money in the bank will help cover expenses while you are not earning.
The Importance of a Savings Account
Why do you need a rainy day fund in a savings account? Even if you don’t anticipate anything happening, your emergency fund needs to be easily accessible. A savings account that’s linked to your checking means your money will only be a transfer request away. Plus, keeping your money in a conservative liquid fund means you won’t risk losing any capital when it comes time to use that money.
Some people might ask, “why not use your checking account for your rainy day funds?” Most people review their checking accounts regularly, and it can be tempting to see a huge balance there. A savings account is separate, it won’t tempt you the same way. Its job is to be there until you need it. Plus, the appeal of earning free money (in the form of interest) is always a bonus. By having your emergency fund stashed away in a savings account, you’re helping prepare for the future.
Discover Bank, Member FDIC