My Savings Account Has Been Wiped Clean. How Can I Replenish It?

Q: The last few months have been really tough on my finances, and I’ve been forced to broken piggy bankuse my savings for getting by. My emergency fund and savings account are basically zero. Now that my financial situation is starting to improve, I’d like to start building these up again, but it’s all so overwhelming. Where do I begin?

A: Watching savings that took you years to build up disappear in just a few months can be disheartening, but it’s important to remember that you’ve made the right choice. Using emergency funds to survive prolonged unemployment, an unexpected large expense or a medical emergency is the best way to make it through a financial hardship. If your savings are depleted, though, you’ll want to start rebuilding as soon as possible to ensure you have the funds to cover a future financial challenge without falling deeply into debt.

Here’s how to start your rebuilding plan:

Set a goal

Before getting started on saving up money, it’s a good idea to establish a tangible goal. What’s your magic number? You can try to recover the value of the savings lost, or start smaller, with a more attainable goal. Bear in mind that experts recommend having funds to cover three to six months’ worth of living expenses set aside in an emergency fund or savings account.

Review your budget and trim your spending

A good place to start finding those extra dollars for savings is by carefully reviewing your spending for ways to cut back. Look for expenses that can make a difference in a monthly budget without dramatically affecting your quality of life. Think about subscriptions or services that are rarely used, a dining-out budget that can be scaled back and expensive recreational activities that can be swapped with freebies. There’s no need to live like you’re broke, but stripping your budget of some extras can give you the boost of cash you need each month to build up your savings again.

Find a side hustle

Another great way to land extra funds is through a side job. There are many ways to pad a wallet without a major investment of time. Some options include taking surveys on sites like Survey Junkie and Swagbucks and doing gig work for companies like Uber, DoorDash and Rover.

Sell your old treasures

If you’ve spent part of the COVID-19 lockdown giving your house a deep cleaning, you may have unearthed some forgotten treasures that can turn into easy moneymakers. You can sell old clothing on ThredUp, unwanted jewelry on Worthy.com, make good money off your unwanted furniture through Chairish, sell or trade unused sports equipment on Swap Me Sports and sell kids clothing and toys on Kid to Kid. Use the cash you earn from these sales to jumpstart your new nest egg.

Make a plan

Once you have a goal in place for building your savings, and you’ve maximized the possible monthly contributions toward savings each month, it’s time to create a plan. Map out a timeline of how long it’ll take to reach your goal when putting away as much as possible each month. Remember: the more aggressively you save now, the sooner you’ll reach your goal.

Start saving

It’s time to put the plan into action!

The best way to ensure regular savings happens each month is to make it automatic. You can set up an automatic monthly transfer from your Destinations CU Checking Account to your Destinations CU [Share/Savings] Account on a designated day of the month. You may want to have the transfer go through several days after you receive your monthly salary, or it might work out better to put a smaller amount of money into savings each week. Give us a call at 410-663-2500 ext 124 to discuss your options.

Put unexpected windfalls into savings

To speed up the process of rebuilding depleted savings, you may want to resolve to put unexpected windfalls into an emergency fund or savings account. This can include tax refunds, a work bonus and gift money. If another round of Coronavirus stimulus checks is approved, consider using these funds for your savings as well. Earmarking future windfalls for savings can shorten the amount of time spent cutting corners in a budget and taking on extra jobs to build up a savings account.

Rebuilding an emergency fund and savings account from the bottom up isn’t easy. It takes commitment, hard work and the ability to keep a long-term goal in mind; however, the security that comes from knowing you have a safety cushion to fall back on in case of a financial setback will make this goal worth the effort many times over.

If you need some guidance on managing your money, building savings and reducing debt, HOPE Inside might be a big help.  Destinations Credit Union has partnered with Operation HOPE to bring you the services of a financial well-being coach at no cost to you.  Coaching meetings can be held by telephone or virtually during this time.

Your Turn: Have you started working on rebuilding your savings? Tell us about it in the comments.

 

Do I Need An Emergency Fund And A Rainy Day Fund?

Q: Do I need to have a separate rainy day fund and emergency fund?jar with money labeled emergency fund

A: In an effort to simplify their money, people sometimes consolidate accounts. This is OK in many instances, but it’s important to remember that rainy day funds and emergency funds serve different purposes. Additionally, it’s important to have not just one, but both funds available to tap into as needed.

Read on for all your questions on rainy day and emergency funds, answered.

Why have a rainy day fund?

Say your washing machine decides to suddenly quit on you and needs replacing. You’re now looking at an extra expense that can run anywhere from $350-$850 (or more). Where are you going to get that kind of money in a pinch?

According to a Federal Reserve Board report, if you’re like 44% of Americans, you’ll need to sell something you own or borrow money to fund such an unexpected expense. Or, you might choose to charge the purchase of a new washing machine to a credit card, which means you’ll pay extra in interest and the cost of the new machine will be haunting you for months-or even years-to come. Either way, a surprise expense of a few hundred dollars can be enough to send you into a tailspin of debt.

Is there a solution?

Here’s where your rainy day fund comes in. It’s a small savings account created just for these types of small, unfixed expenses that you know will crop up on occasion. You’ll tap into your rainy day fund to pay for minor household and car repairs, to cover the cost of summer camp for your child, or to replace your broken kitchen table. When you have a way to fund these small financial hiccups, they won’t have as much of a chance to disrupt your financial health.

Why have an emergency fund?

In contrast to your rainy day fund, an emergency fund is for much larger expenses. It should have enough padding to keep you afloat even if you experience a major disruption in your life, like a divorce, job loss or illness. Without an emergency fund, any of these, or a similar event, can leave you scrambling to pay your bills and quickly send you into a debt trap that can last years.

How much money should be in each fund?

Your rainy day fund, created for minor expenses, only needs to hold $500-$1,000. That should be enough to tide you over in the event of a small, unfixed expense.

Sometimes, you may be able to anticipate these expenses and save up for them accordingly. For example, if you know your child will need braces next year or that your HVAC system will need replacing in a year or two, you can build up your rainy day fund over the next several months until it has enough to fund these anticipated expenses.

Your emergency fund, however, should be positioned to pull you through major financial crises. That’s why you will need to have a lot more money in the account. Ideally, it should hold 3-6 months’ worth of your living expenses. This value will vary according to circumstance and can be anywhere from $3,000-$10,000 or more. Find your own magic number by tracking all your fixed and discretionary expenses for a month and multiplying that amount by 3 or 6.

Where should I keep these funds?

By definition, the cash in both of these funds needs to be easily accessible. Don’t lock the money up in a Savings Certificate or another long-term savings account that will make it difficult and/or expensive to withdraw when the need arises.

Your Destinations Credit Union Savings Account is a perfect home for both your rainy day fund and your emergency fund. You can even set up multiple accounts for each one. Your money is always safe here, and our rates are generally some of the best in the market. Best of all, you’re free to withdraw your funds without penalty whenever you need to do so.

How can I build my funds?

You’re convinced: You need an emergency fund and a rainy day fund. But how are you going to get the money for both? If you’ve never saved up for unexpected expenses before, the prospect of doing so can be daunting.

No worries, though. With a bit of discipline and hard work it can be done! Use these three tips to build your funds:

  1. Start a side hustle. Freelance for hire, take online surveys for spare cash or accept a seasonal position. Keep all or most of the extra money you pull in for your funds, making equal contributions to each fund.
  2. Trim your budget. Take a long hard look at where your money goes each month and choose your biggest money-gobbler to be pruned. Use the money you save for your funds.
  3. Make it automatic. Set up an automatic transfer from your Checking Account to your Savings Accounts so your funds grow on autopilot and are less tempting to use for fun.

It may be some time before your funds are fully padded, but that’s OK. It takes time to save up that kind of money, and hopefully you won’t need to tap into your savings until you’ve successfully built your funds.

Also, you won’t need to stick to your tightened budget or keep your extra job forever; you can drop both as soon as your funds are built, taking them up again only when the money in one of the funds is depleted.

Start setting up your rainy day and emergency funds today! You’ll sleep better at night knowing you’re prepared for any financial eventuality.

Your Turn: Do you have a rainy day fund and an emergency fund, or do you use the same source to fund any extra expense? Share your take with us in the comments below.

SOURCES:
https://www.thebalance.com/do-you-need-a-rainy-day-fund-and-an-emergency-fund-4178821

https://www.aarp.org/money/credit-loans-debt/info-08-2011/rainyday-fund-emergency-fund.html
https://www.nerdwallet.com/blog/banking/why-you-should-save-a-rainy-day-fund-and-an-emergency-fund/