Texas Couple’s Emergency Fund

Was a Lifeline in Challenging Times

Do I Need an Emergency Fund?

  • Not having emergency cash is Americans top financial regret related to the pandemic.[1]
  • You need emergency cash to handle all kinds of financial challenges, but how much you need depends on several factors such as age, family circumstances, and employment.
  • Extra cash can also be helpful to see retirees through periods of market volatility.

David G. of Edinburg, Texas, was nearing 50 when the company where he served as a director suddenly ceased operations. David and his wife, who have two children, were left with about one-third of their typical income.

Fortunately, the couple had been saving as much as possible for years, padding an emergency fund that proved vital when they faced this income loss. “We just dumped in whatever we could—that was our strategy,” David says. “They say a little goes a long way, yes, but a little more goes even further.”

Today, many Americans are facing similar financial challenges. Reduced work hours, furloughs, stock market losses, school closures, and health issues are some of the pressures that people may be experiencing. A lack of adequate emergency cash can make these situations even more stressful.

How Much Emergency Cash You Need Depends on Your Situation

Experts commonly advise building a safety net big enough to cover your expenses for three to six months. But depending on your family’s circumstances (if your family has only one wage earner, for example), consider an emergency fund large enough to cover nine months, or even a year, of expenses. That buffer can help you avoid dipping into money marked for long-term savings and give you more peace of mind.

In David’s case, having a larger cash pool turned out to be essential. It took him almost a year to land a new job that fit his level of experience and his family’s needs. Now that he’s back to work, David is starting to rebuild the family’s emergency fund. “It’s all about having the foresight to start preparing early because you don’t know what’s coming down the line,” he says.

And unemployment is not the only financial challenge that can be long lasting. Events such as medical crises, caring for loved ones and natural disasters, for example, can sometimes keep you away from your job or add to your expenses unexpectedly. Having access to an emergency fund can help you keep your finances stable without needing to liquidate your investments or take on additional debt.

Retirees May Need Extra Emergency Cash

For those who are retired or nearing retirement, financial experts recommend saving not only for emergencies, but also for market volatility.

The difference: An emergency fund is an account you leave untouched except for true emergencies. But a “market volatility” cash reserve is an additional fund that you can access if you want or need to spend some of your assets during a downturn.

This is useful because you don’t want to sell stocks that have lost a lot of value. So, setting aside one to three years’ worth of expenses in relatively liquid assets can provide extra security and flexibility in the event of a prolonged market slide during or just before retirement.

The Best Places to Keep Emergency Cash

Online savings accounts can be a great place to save for dedicated purposes such as emergencies because you’ll have easy access to your cash when you need it. What’s more, online accounts at Barclays have no monthly maintenance fees, don’t require a minimum opening balance, and are insured by the Federal Deposit Insurance Corporation. Barclays also offers higher yields than traditional brick-and-mortar banks do.

When you don’t need the cash all at once — say for your market volatility fund — you can lock in interest rates by investing in multiple certificates of deposit (CDs) with different maturities, a strategy called “laddering.” Make sure that when each CD matures, there is enough cash in it to cover living expenses for a few months. Barclays has outstanding rates on CDs as well.

Start Saving Emergency Cash Today

No one knows when or if they may face a serious financial challenge. But having dedicated emergency savings can make a potential setback far less stressful. It’s a good idea to set a goal based on your unique situation, and then make regular, small contributions to build up the cash you need.

See how long you’ll need to save to reach your goal. Use the Barclays Savings Assistant tool

[1]Bankrate.com survey; June 18, 2020.