LSU AgCenter Family Economist Explains Importance of Emergency Fund

Jeanette A. Tucker  |  4/19/2005 10:28:33 PM

News You Can Use For April 2004

Having an emergency fund may be the most important difference between individuals and families who stay afloat and those who are sinking financially, notes LSU AgCenter family economics professor Dr. Jeanette Tucker.

Maintaining emergency savings allows families to meet unexpected financial challenges such as home and auto repairs, unexpected medical or dental expenses, paying for a traffic ticket or flying to visit a sick parent.

"An emergency fund not only allows you to recover these expenses, it also gives the peace of mind that you can afford these types of financial emergencies," the family economist emphasizes.

Tucker points out that not having an emergency fund is a primary reason that many individuals borrow too much money at high interest rates. For example, emergency savings could prevent many Americans from taking out payday loans at interest rates that average 300 percent to 500 percent.

"It is usually best to keep emergency savings in a bank or credit union savings account," Tucker advises, explaining that these types of accounts offer easier access to your money than certificates of deposit, U.S. Savings Bonds or mutual funds.

Keeping your emergency fund in a savings account also makes it much less likely that you will use these savings to pay for everyday, non-emergency expenses. That’s why it is usually a mistake to keep your emergency fund in a checking account.

Many financial institutions may require at least $100 to open a savings account and require customers to maintain a $200 minimum balance to avoid monthly fees. Wise consumers, however, can shop around to find banks and credit unions with lower minimums. Financial institutions may waive the minimums if you have other accounts at that institution.

Where can you find money to save? Tucker says to begin by saving the loose change that you accumulate. Americans typically can save more than $100 in loose change each year. Use this change to open and grow a savings account.

If you receive a tax refund or Earned Income Tax Credit, use a portion of this money to begin or increase savings. Since Earned Income Tax Credits average nearly $2,000, you may be able to open a savings account and still have plenty of money to pay off debts or cover other expenses.

The family economist offers ways to cut back on small, unnecessary expenditures.

• Pack your lunch rather than eating a fast-food meal, and you can save more than $1,000 per year.

• Cut one soft drink from a vending machine each day, and save $275 per year.

• Switch from premium cable plans to basic cable TV, and save more than $450 each year.

• Substitute regular coffee for a cappuccino at work, and save $480 per year.

• Visit the library and borrow, rather than buying one book each month, and you can save $180 per year.

• Bounce one less check a month and save $240 annually.

• Pay bills on time to avoid $25 late fee with each late payment.

• Improve your health and finances by stopping smoking. Cutting two packs per day can save well more than $2,000 per year.

"Building an emergency fund may be easier if you involve the whole family in meeting this goal," Tucker says, advising, "Explain the importance of emergency savings to your spouse and children; they may even help build the account."

She explains that they also will be more likely to understand why it is more important for your family to increase these savings than to pay for expensive gifts for birthdays and holidays or to buy them the latest style of tennis shoes.

Pay yourself first and have a portion of your paycheck deposited directly into your savings account. Another easy way to accumulate your emergency savings is to ask your bank or credit union to automatically transfer funds from your checking account to your savings account each month.

"Automatic savings is the easiest savings," Tucker says. "You may never miss the money that you don’t see."

For information on related family and consumer topics, visit the FCS Web site at For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.


On the Internet: LSU AgCenter:

Jeanette Tucker (225) 578-1425 or

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