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The financial ramification of the coronavirus has reinforced the importance of the bedrock of any financial plan, having an emergency fund.  As the name implies, an emergency fund is just that. A pool of money that is available in an emergency for an individual or family to dip into at a moment’s notice so that they may overcome an unexpected financial set back without it having a massive negative effect on their overall financial situation.  Twelve million people and counting find themselves suddenly and very unexpectedly unemployed as a result of the government action to control the spread of the virus. Having an emergency fund offers a degree of comfort and security and can help tremendously during these times of crisis. 


Unfortunately, the statistics of how prepared people are to confront an unexpected disruption in their income is frightening.  Forty-five percent of people living in the United States claim that they do not have enough money saved to cover expenses for three months if their source of income is suddenly lost. Given this sobering statistic, building an emergency fund is the most important thing everyone should do 


The best way to start an emergency fund is with a savings or money market account.  An emergency fund needs to be liquid and accessible quickly. A savings or money market account dedicated to emergency expenses is easy to manage. It’s easy to withdraw money from the account when a problem arises. It’s also easy to make deposits. Many people fund their emergency account by arranging transfers from their checking account directly and automatically. Others specify an amount to be direct deposited from their paychecks. The common ingredient in successfully building an emergency fund is that it is done automatically and electronically.


Don’t be intimidated by starting.  Remember, you can start small. Every little bit helps and over time the account will grow.  Also, adding to an emergency fund on a regular basis instills good savings habits which are tremendously beneficial.  Good habits are easier to build if performing them seems effortless. It is always a good idea to set a goal. Seeing progress toward your goal is a self-reinforcing motivator for many people.   When you hit your target amount, begin to gradually increase the number or consider investing those new dollars into other areas of your financial life such as retirement savings or college planning.


There are a lot of options to house your emergency fund.  Banks sometimes offer special higher-yielding savings account that people may use for this purpose. There are also some very compelling online-only banks that are able to offer higher interest rates to depositors because they have lower overhead costs. Some savers opt for credit unions as these institutions can offer better interest rates than the average bank.


The amount needed in an emergency fund will obviously vary from person to person. Most experts agree that a healthy emergency fund will contain about six months’ worth of living expenses. That means enough to buy groceries, pay rent, cover transportation costs and so on. While this is a large amount for anyone, it’s important to remember the financial and emotional benefits that an emergency fund can have.  It can be the difference between an unexpected event becoming life-altering in a detrimental way rather than just being a short-term interruption. 


Many people underestimate the likelihood of an emergency and in turn, fail to realize its importance.  The crisis we are faced with right now illustrates very clearly how critical having one is. Successfully creating an emergency fund begins with an awareness and understanding of one’s personal finances and the discipline to develop an effective savings plan.

Securities and Investment Advisory Services offered through Essex Financial Services, Inc., a Registered Investment Advisor, Member FINRA, SIPC.  A subsidiary of Essex Savings Bank. The securities and insurance products offered through Essex Financial Services, Inc. are not a deposit of, or other obligation of, or guaranteed by any bank, or an affiliate of any bank, are not insured by the FDIC or any other agency of the United States, the Bank or an affiliate of the bank and involve investment risk, including the possibility of a loss of the principal amount invested.