Savings Account vs Safety Net vs Emergency Fund

​Can y'all relate? The pandemic came in without a care in the world about our 2020 plans. I knew that nothing is certain when the economy is hit. @hokagekb and I immediately started talking about how prepared or unprepared we are if one of us lost our jobs. ⁠

​This pandemic said girl I do not care about... ⁠
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❌ Y'all cruise to Jamaica, Grand Cayman, & Cozumel⁠
❌ Y'all trip to Orlando⁠
❌ Y'all Traditional Wedding⁠
❌ Y'all Honeymoon to Jamaica⁠

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This pandemic literally spit in my face! My life was rearranged so fast that I didn't know what was up and what was down. ⁠

This pandemic did not care about the fact that most of these trips had been planned and thought about for over a year. 

The only good thing to come from the surprise of having our entire lives turned upside down is that my husband and I took a step back and reassessed our finances. Check out Our Budget vs Corona for the details. 

I know many of you found yourself in the same way and you wondered if your savings account was enough. Let's unpack that! Often times I get asked is there a difference between a savings account vs a safety net vs an emergency fund. The answer is "Yes, there is!". Normally, you will hear about people talk about them like they are the same thing and that is the first way to get you caught up.

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Savings Account

A savings account is connected to your checking account. You use this account to hold your rent money until the end of the month or to remove noise from your checking account on a month by month basis. 

Usually, the interest rate on a standard checking account that is connected to your spending account is less than 0.20%. Sis, that ain't nothing but pennies on pennies. 

Savings accounts are used to remove money from your sight temporarily. 

Safety Net

A safety net could be in your savings or checking account but it is an amount that you have set aside for just in case. You know just in case I buy those shoes or just in case I buy that game or just in case I see something online that I want to buy. This amount is normally $500 or less. 

This money is easily accessible for an emergency but it does not earn almost any interest. Either 0.25% because it is in the savings account attached to your bank account or about 0.10% because it is located in your checking account.

Safety nets are used to allow you to have peace of mind for quick or easy purchases that might need to be made at any given time. 

Emergency Fund

An emergency fund is a form of a sinking fund. Sinking funds are where you set aside money every month until you hit your target goal. An emergency fund is specifically for instances in which you have a financial emergency. This could be due to the loss of a job, all four car tires needing to be replaced, etc. Emergency funds are not for non-emergency purchases like buying a new purse or shoes.

In a study by CNBC it was found that 41% of Americans cannot afford an emergency expense of $1,000.

Do not put yourself in a financial bind, save for the unknown, save so you can eat when things are uncertain. Not sure how to get your emergency fund off the ground? Join the Free Emergency Fund Challenge. 

I highly recommend moving your emergency fund over to a high yield interest savings account!

Emergency Funds are used to plan for an unforeseen  emergency like a hospital visit or job loss. 

Invest in yourself and ensure that you have all three because each one serves a purpose. Even if you don't have one of these types of savings get started today. It does not matter when you make the first step it just matters that you make it.

Let me know in the comments if this resonated with you.