Follow these steps to start your emergency fund so you're prepared when life happens.

Imagine: you’re driving down the highway, when all of the sudden you blow a tire. Not only is this scary and stressful, it can be expensive. You probably didn’t have a tire built into your monthly budget, so how do you handle the expense? Say hello to your emergency fund. Don’t have one? We give you tips on how to get started so you don’t have to feel overwhelmed when life throws you a curve ball.  

How to Start an Emergency Fund

July 7, 2017

Follow these steps to start your emergency fund so you're prepared when life happens.

Imagine: you’re driving down the highway, when all of the sudden you blow a tire. Not only is this scary and stressful, it can be expensive. You probably didn’t have a tire built into your monthly budget, so how do you handle the expense? Say hello to your emergency fund. Don’t have one? We give you tips on how to get started so you don’t have to feel overwhelmed when life throws you a curve ball. 

Before we dive into the steps to starting an emergency fund, consider these two important factors of an emergency fund: how much you want to put into your emergency fund and what it should be used for. 

An emergency fund should have enough in it to cover three to six months worth of expenses. Also keep in mind an emergency fund is just that: only for emergencies. Don’t think of it as your  savings account; it should be for specific and rare occurrences, such as a hospital stay, loss of a job, or major car repair. 

Ready to start on your emergency fund? Follow these four steps to build up your fund without feeling major budget pain. 

Step One: Review Your Budget


As with most financial topics, it’s important to review your budget first. Take a look at your income versus expenses, and see how much you can manage to store away each month. You might want to look for ways to cut expenses short term, such as skipping a few months of a subscription box or cutting down on eating out, to help add up funds into your account quicker.  

If setting a timeline and goals help, decide on a deadline for your emergency fund. If you set a goal of 8 months, divide that by the total amount you want in your fund to give yourself a monthly savings goal. You can then review your budget to see ways you can cut back to make your monthly goal. 

 

Step Two: Designate an Account 

It can be tempting to touch your emergency fund, so take temptation away by setting up a separate account. Open a designated savings account only for your emergency fund, and don’t attach it to any other accounts. If you use a lot of cash, you may want to designate a pretty vase, jar or box as your emergency fund stash. Once a month, take it to the bank and deposit it into the account. 

 

Step 3: Start Saving 

Once you’ve reviewed your budget and goals, plus set up a separate account, it’s time to start saving! There are lots of ways you can start saving that won’t put a lot of pressure on your budget or lifestyle. Try some of these ideas:

  • Set up a direct deposit from your paycheck-simple, easy and hassle free!
  • Use cash a lot? Stash away every $5 bill you receive and deposit it into your fund
  • Cut out soda or alcohol
  • Designate a place to store loose change and deposit it once full
  • Get a bonus or commission? Put at least half of it into your fund
  • Start couponing

Just a few simple changes or adjustments can help you discover extra money to use for your fund. Need other cost cutting ideas? Here are some ways to cut back on spending you won’t even notice. 

 

Step 4: Adjust Savings Plan 

Once you've hit your emergency savings goal amount, it's time to re-adjust your savings plan. If your normal savings seem a little low, try transitioning your plan to your savings for a while to help replenish it. It's a good idea to review your expenses each year to see if you need to add to your emergency fund. If an event arises that calls for your emergency fund, revert back to your emergency fund savings plan to help replace the money after the emergency passes.

Being prepared is one way you can take control of your financial future. Having a solid emergency fund will help protect you from a financial mishap due to unforeseen circumstances. Using the tips above, you'll be able to start socking away money slowly but surely to help you create an emergency fund.

Find more information on planning for the future and how to be financially prepared here.

 

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