How to Save for Emergencies | theSkimm

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Save for Emergencies

Life's full of surprises. Emergency funds can save the day when you get the not-so-fun and expensive kind. That’s why saving for a rainy day is the first step in living a smarter financial life. Follow these steps to get busy building yours.

Step #1: Set a Goal

You’ve got to start somewhere. How about here? See why emergency funds are a must-have, then take the quiz to find out how much you need to save.


Step #2: Talk the Talk

Speaking the 'emergency savings' language is part of the fun(d). Brush up on the top terms you need to know here.


50/20/30 index card
50/20/30

A popular budgeting rule that breaks down your paycheck so 50% goes toward basic needs (housing, groceries), 20% to saving and investing, and 30% for wants (Netflix, puzzles).

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APY

Your yearly reward for saving money. It’s the total amount of interest you’ll earn on your bank deposits. Size matters, and bigger is better.

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Automated Clearing House (ACH)

Where the electronic payment magic happens. A processing network that moves money between banks for things like direct deposit and auto-pay.

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CD

Not how you listened to music in 1999. Stands for certificate of deposit. It’s a type of bank account that pays a lot of interest IF you don’t withdraw the money for a certain amount of time. Or else you’ll pay a penalty.

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Direct Deposit

An e-payment from one bank account (like your employer’s or Uncle Sam’s) to another (like yours) for things like paychecks and tax refunds. Nice doing business.

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Emergency Fund

A savings account just for surprise expenses. Think: losing your job or a surprise medical bill. Shoot for at least three months’ worth of take-home pay. Side effects include sleeping like a baby.

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FDIC

A bodyguard for your bank account. Uncle Sam wants you to trust the banking system. So if your bank fails or runs out of money, the US gov will step in and pay you back up to $250K. Thanks.

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Gross Income

The total amount of money you earn before taxes or other deductions. Not actually gross at all.

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High-Yield Savings Account

A bank account that pays a lot of interest, usually offered at online banks vs. old-school institutions. More bang for your buck. Literally.

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Liquidity

How fast and easily you can get your hands on your money when you need it. Cash savings is as liquid as it gets. Things that aren’t: a home, art, jewelry, stocks, and anything else you can’t sell at a moment’s notice for at least what you paid.

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Money Market Account

A cross between checking and savings. It might come with checks and a debit card, but typically limits your monthly withdrawals and pays higher interest like a savings account. And there may be a deposit minimum.

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Net Income

How much of your gross (total) income you pocket after taxes and other deductions, like 401(k) savings and insurance premiums. Not as nice as your gross income.

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Overdraft Protection

An optional safety net that covers transactions when your checking account is running on empty. Instead, the money will come out of a backup account or line of credit. Fees usually apply.

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Pay Yourself First

When you save money as soon as your paycheck hits...and before you do anything else. Like pay your bills or buy groceries. Future you likes this plan.

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Routing Number

The nine-digit code that represents your bank. Good to know if you’re setting up direct deposit or making an online payment.

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Sinking Fund index card
Sinking Fund

The savings-account opposite of an emergency fund where you set aside money for planned expenses (not unexpected ones) that don’t fit into your regular monthly budget. Hi, new tires and holiday gifts.

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Take-Home Pay

A less fancy way to say ‘net income,’ or the amount of money that hits your bank account after taxes are deducted from your paycheck. Look at this number when building your budget and deciding how much is realistic to save.

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