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Emergency Fund Importance and Tips

January 10, 2017

When life throws you a financial curveball, are you ready to knock the challenge out of the park? Are “what ifs” a match for your emergency savings stash? Whether you’re faced with a major home repair cost or surprised by an inconvenient parking ticket, having a designated account to cover these unexpected expenses can help you keep your budget balanced. Experts agree it’s best to have at least three to six months of net income set aside in case of an unforeseen turn of events.

If the concept of establishing and maintaining an emergency fund is new to your budget, start small. While your ultimate goal may be to have six months of net income stashed away, setting an initial goal of saving a couple of hundred dollars can still ease the burden of an unanticipated expense. Whether you find it best to evaluate your progress monthly, quarterly or yearly, defined goals will hold you accountable.

As you begin, simply pledging to save $10 to $20 a week will help grow your emergency fund without causing a major disruption in your normal routine. Other methods that can help you reach your goals over time include saving your tax refund, depositing collected change and rounding account balances down to a whole number and transferring the excess each payday. Saving automatically is also a proven method for reaching goals efficiently. Opt to have a portion of your income automatically deposited into a designated emergency savings account.

As your reserve develops, set clear rules that define what expenses are acceptable to dip into your emergency savings account for. To avoid a fluctuating balance, stay consistent. This is where the importance of having a defined budget is underscored. If you find that you are utilizing your emergency cash more frequently for certain expenses, it may be time to adjust your budget to cover those costs instead.

Financial needs will adjust and expenses will fluctuate, but always keep your emergency fund in mind. As you prepare to begin a new chapter of life, such as welcoming a new family member or planning to purchase a home, it is important to understand how these circumstances correlate with your reserve needs. At a time of significant change, it may be to your benefit to have a more significant cushion set aside.

There may also be other chapters of life when your funds may be strategically used for another benefit. If monthly expenses are lower after your children move out on their own, more money could be designated for personal long-term savings goals instead. While it is still important to have an ample cushion of three to six months of net income, excess funds could be redirected for other purposes. Recalculate your emergency savings account routinely to know when you need to save more or cut back spending in other areas.

If you’re looking for peace of mind to ensure that financial surprises will not throw your plans completely off track or spiral you into credit card debt, then creating an emergency fund is your solution. Talk with your local bank about the best account to stash your funds away. Guidance can also be provided to help you determine a realistic plan for your budget and goals.

Jim Oosterman is the Vice President of Melrose Bank. He can be reached by telephone at 781-665-2500, online at or on Facebook at

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