Emergency savings function like airbags, absorbing the impact of financial shocks. Without them, unexpected expenses can have severe consequences, sometimes causing irreparable damage.
Saving for emergencies is something we all know we should do, yet it often takes a back seat to other financial priorities. “Ask anyone who has faced a layoff or had to pay for an ambulance ride—peace of mind is everything,” says Harmony Maghanoy, Financial Wellness Program Lead at Hawaii USA Federal Credit Union. “Most emergencies come with a price tag. When you don’t have to worry about the cost, it provides much-needed relief during an already stressful time.”
Harmony answers some common questions about emergency savings:
How much should I save?
Start with $500. If that feels overwhelming, focus on building the habit rather than fixating on the total amount. The key is consistency: set a clear goal and make small, regular deposits to strengthen your savings habit. Automating the process through payroll deductions or automatic transfers can make it even easier—set it and forget it.
Where should I keep my emergency savings?
Your emergency fund should be both easily accessible and secure. The best place to store it is in a liquid account at an insured financial institution, such as a savings account. “It may not earn much interest, but that’s not its purpose,” Harmony reminds us. “Its value lies in the financial security it provides.”
Once your emergency savings are fully funded, other questions may arise:
What qualifies as an ‘emergency’?
An emergency is an unexpected expense that couldn’t have been planned for, such as a medical crisis or job loss.
Is it possible to save too much for emergencies?
Yes. If you have more than six months’ worth of living expenses saved, you may be missing out on opportunities to grow your money in the long term. A financial coach or advisor can help determine the best way to optimize your savings strategy.
Building an emergency fund may not always seem urgent, but it’s one of the most important financial steps you can take. Like an airbag, it’s there to protect you when life takes an unexpected turn.