Why Does a Student Need an Emergency Fund?

profileCurrent Team | November 16, 2022
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Life happens — whether it’s a surprise medical bill, an unexpected ticket, or school expense, and every student should have an emergency fund to be ready when it does. Building a fund also helps develop better money habits that will help them long after they graduate.

So what is an emergency fund?

It’s basically a separate bank or savings account where you set aside money in case of an emergency.

Why do I need an emergency fund?

If you’re a student, you may be wondering why you even need an emergency fund.

It’s incredibly important for everyone, especially college students, to factor an emergency fund into their budget. Unexpected expenses happen and when they do it can put people in difficult financial positions. Either they have to make tough choices to cover these sudden expenses, or they’re unable to handle the financial toll and suffer the consequences.

An emergency fund obviously won’t prevent bad things from happening, but it will put you in a better place to weather the storm and come out the otherside with some money still in your pocket if and when they do happen.

How much do I need in my emergency fund?

So, how much should you set aside? The general rule of thumb is six months worth of expenses. Even if you’re still in college and don’t think you have many expenses, putting an emergency fund together is still a good idea. You never know what might happen, and even an unexpected expense of a few hundred dollars could make a huge impact on your financial situation.

Don’t worry if at first your emergency fund doesn’t have a ton of money in it, it’s ok to start small. Try setting an initial goal that feels attainable, like $500, then work your way up to larger amounts over time.

Where should I put my emergency fund money?

A savings account with a high interest rate is a great place to not only set aside your money, but grow it while you save. You should make sure it’s one that doesn’t require large deposits, and since an emergency can happen at any time, you’ll need one that allows you to access your money instantly without penalties.

Here’s a list of high-yield savings accounts that might work for you.

Tips to start building your emergency fund:

  1. Set a goal – Figure out how much money you realistically need to save, then set a monthly goal that feels achievable for you to work towards it.
  2. Move money into savings automatically – Set up recurring deposits into your savings account even if it’s as little as $5 so you’re getting closer to your goal every month without thinking about it. If your employer offers direct deposit, you can route your paycheck into different accounts so a portion of it goes into savings automatically every time you get paid.
  3. Save every extra cent – There are apps that will round up your purchases and drop the extra change into your savings so you can save automatically without all the extra work. Your Current Savings Pods can help do this.
  4. Find extra sources of cash – Selling old textbooks, tutoring other students, or even just skipping unnecessary expenses every once in a while and saving the extra cash can really help later on.

Good habits start early

Building an emergency fund is just a good habit to get into. A small emergency fund in college can become a big emergency fund later on and you’ll thank your younger self for getting you started on the right foot.

A lot of people don’t start to take their finances seriously until much later in their lives. As much as 61% of American adults do not have money on hand that they could use in case of an emergency. Saving money for emergencies doesn’t sound like fun, but it can be the difference between being able to buy food after something goes wrong, and having to borrow money or go into debt to make ends meet after an emergency.

People who don’t have enough money saved up tend to put their emergency expenses on their credit cards, which means first they have to deal with the emergency, then pay off new debts. When interest is factored in, people end up paying back more money to their creditors than they had to pay for the actual emergency.

Some degree of debt is likely inevitable. But if you have a growing emergency fund you can dip into when something bad happens, you will dodge the bullet of paying off years’ worth of debt because of one bad thing.

Whatever you want to do, there’s a chance you’ll be smarter about it and do it better if you cultivate good financial habits, like putting a little money away in your emergency fund whenever you can. At Current, we offer Savings Pods as an easy way for you to start to build this emergency fund.

References

Quick Tips to Help College Students Start Saving Money. (March 2021). CNBC.

40 Percent of College Students Are Saving Up for an Emergency Fund. (July 2021). The Hill.

6 Crucial Money Tips for College Students. (October 2019). Forbes.

Most Americans Don’t Have Enough in Savings to Cover a $1K Emergency. (January 2018). Bankrate.

When to Use Your Emergency Fund. (June 2021). TIME.

5 Budgeting Tips for College Students That Can Help Set You Up for Financial Success. (January 2021). CNBC.

Good Financial Habits to Turn Your Finances Around. (October 2021). Current.

ORIGINAL ARTICLE FOR REFERENCE:

7 - Jan - Current - Why Does a Student Need an Emergency Fund?

Meta description: It’s important for students to build up an emergency fund to cover unexpected expenses. Learn why here.

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Students need emergency funds because they need to be prepared for unexpected expenses. Building these funds also helps them to develop good financial habits that will help them long after they graduate.

Why Do I Need an Emergency Fund?

If you’re a student, you may be wondering why you need an emergency fund.

But it is incredibly important for everyone — even, and perhaps especially, college students — to put an emergency fund into their budget. Unexpected expenses happen, and many people have been forced to make very difficult choices because they have been unable to cover the financial toll of those emergencies.

Having an emergency fund will not prevent those bad things from happening, but it will put you in a good place to weather the storm and emerge with money still in your bank account.

What Should Go in My Emergency Fund?

How much should go into your emergency fund? The rule of thumb is that the fund should have half a year’s salary after you graduate. This is to deal with expenses that come out of nowhere, like surviving when you find yourself suddenly unemployed, taking your pet to the vet, or buying a last-minute plane ticket to deal with a family emergency.

Six months’ worth of your salary is a good figure because the average time for most Americans to be unemployed is five months.

Even if you are still enrolled in college, putting an emergency fund together is still a good idea. An unexpected expense of a few hundred dollars can be financially difficult to bear. Some students have even been forced to drop out of college because of this.

So, if you’re still in college, what should you do? First, don’t worry that your emergency fund must have a lot of money in it. Even $250 in a savings account that has some yield to it will grow into enough of a safety net to cover you from sudden expenses, and it will be one less thing to worry about. If you can, put even 10% of your paychecks or money that your parents send you into that emergency fund.

Look for other ways you can contribute to your own emergency fund. Selling old textbooks might get you even $5 that you can save for emergencies. Tutoring other students or using financial aid refunds might be other ways you can continue to grow your rainy day fund.

Create Good Habits

Another reason you should develop an emergency fund is because it is simply a good habit to get into. Starting a small emergency fund in college can become a big emergency fund in adulthood.

Many people don’t take their finances seriously until much later in their lives. Saving money for emergencies doesn’t sound like fun, but it is the difference between being able to buy food after something goes wrong and having to borrow money or go into debt to make ends meet after an emergency.

As much as 61% of American adults do not have money on hand that they could use in case of an emergency. By starting early with your emergency fund, you significantly reduce the risk of going bankrupt because of something out of your control.

This is also a factor in reducing the likelihood that you will have to take on debt in your late 20s and 30s. For all the people who didn’t have enough money saved up, they had to put their emergency expenses on their credit cards, which means that they had to deal with whatever the emergency was and then focus on paying off their new debts. When interest is factored in, people end up paying back more money to their creditors than they had to pay for the actual emergency.

Some degree of debt is likely inevitable. But if you have a growing emergency fund you can dip into when something bad happens, you will dodge the bullet of paying off years’ worth of debt because of one bad thing.

Investing in Yourself

Another good reason to have an emergency fund is that the idea of saving money and planning for emergencies will also benefit other parts of your life, especially your financial life. Being diligent about regularly putting a little money into your emergency fund makes it more likely that you will do other good things, like pay off your student debt faster or reach your savings goals.

You can even think bigger, like buying a used car and paying it off earlier. Or, you can think in terms of smaller goals, like saving enough money to go home for the holidays or treating yourself to a nice dinner out on your birthday without bringing your checking account down too low.

Whatever you want to do, there’s a chance you’ll be smarter about it and do it better if you cultivate good financial habits, like putting a little money away in your emergency fund whenever you can. At Current, we offer Savings Pods as an easy way for you to start to build this emergency fund.

An emergency fund is a form of investing in yourself. You are protecting yourself from the full brunt of unexpected expenses, and you are protecting your future from mountains of credit card debt. This is why a student needs an emergency fund.

References

Quick Tips to Help College Students Start Saving Money. (March 2021). CNBC.

40 Percent of College Students Are Saving Up for an Emergency Fund. (July 2021). The Hill.

6 Crucial Money Tips for College Students. (October 2019). Forbes.

Most Americans Don’t Have Enough in Savings to Cover a $1K Emergency. (January 2018). Bankrate.

When to Use Your Emergency Fund. (June 2021). TIME.

5 Budgeting Tips for College Students That Can Help Set You Up for Financial Success. (January 2021). CNBC.

Good Financial Habits to Turn Your Finances Around. (October 2021). Current.


Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC.

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