Keys to Building a Solid Emergency Fund in 2021 

Let’s talk about not only setting up an emergency fund but also how to keep and grow an emergency fund. How many times have any of us tried to build an emergency fund within our checking account? Or even in our savings account that is linked to our checking account?  

I can’t tell you how many times in college I put money into savings to in turn transfer the money back when a new pair of shoes came out or I chose to go out to eat one too many times. I have even known people that place their “emergency” money in high-risk stocks, lose it all, and not have options when the time comes to handle the emergency.  

There are four keys to setting up an emergency fund:  

Open a Safe Account 

It is important to understand the purpose of this money you are setting aside. An emergency fund is not an account that should be invested in the stock market. This fund is not being put aside in order to take on a lot of risk. We don’t know when an unexpected bill or our vehicle breaking down will happen. Because of this, it is key to know that the money you put aside will absolutely be there when (not if) you need it.

Keep Your Money Liquid 

The money you put aside needs to be readily available should you need it. Again, understanding the purpose of this fund comes into play. I have seen instances where people choose to tie their money up in a CD (Certificate of Deposit) where their money cannot be accessed for a year or more. Ultimately, they end up paying a fee to terminate the agreement early and lose hard-earned money. Who likes fees anyway? 

 Earn a Decent Rate of Return 

You will not earn the maximum potential growth of your money in an emergency fund and that is OKAY. On the flip side, you do want to earn a higher rate of return than the savings account as your bank hovers around 0%. The market changes and so do interest rates but within the past year I have seen interest rates in high yield savings accounts to range from 0.40%-1.0%. 

Separate and Systematic 

We have discussed the necessity of keeping this money separate but now let’s look at systematic. In most cases, you can set up automatic withdrawals from your bank account, say $25 per week to transfer to your emergency fund. It’s simple, it’s powerful and it works. Keeping this money separate and systematic prevents the plastic coming out and avoiding paying out interest instead of earning it. There is power in understanding these principles and applying them.  

One safe place to put your emergency funds would be a money market or a high yield savings account. Both types of accounts are very easy to open (some of which do not have fees). I have had success finding different accounts at www.nerdwallet.com.  

Respectfully,  

Jordon Klein 
Financial Services Professional 
Raft MKE, Owner 
www.raftmke.com 

Retirement • Assets • Family • Time 

Raft MKE does not provide legal or tax advice. As an insurance agent, I am not an Attorney and do not practice law. Any discussion of tax benefits is based on our understanding of current tax regulations, which are subject to change.