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A Primer on Building an Emergency Fund

According to a survey on Bankrate, more than half of Americans have less than three months’ worth of expenses saved away in case of an emergency. While it may not be a new or profound sentiment, many feel that the only certainty in today’s world is that it is uncertain.

Nevertheless, it is always a good idea to be ready for the unexpected, and one of the most practical ways to prepare is to build an emergency fund. Knowing that you have some money stored away for sudden expenses can help protect your peace of mind. Here is a brief overview of an emergency fund and what you can do to start building one.

Why You Want To Save for Emergencies

There’s no avoiding the simple fact that things happen. Even the most frugal spender can be surprised by expenses that seem to come from thin air and with little reason. Emergencies can take many forms, such as:

  • Your car breaking down
  • Getting afflicted with a sudden illness
  • Sustaining an injury during an accident
  • Unexpected home repairs
  • Loss of Job

Emergencies can range from mundane to extraordinary. Similarly, your emergency fund can be tailored to address the surprise occurrences that are most likely to affect you. Preparing for everything that might happen to you is impossible, but having some money on hand to address immediate expenses can help you return to normalcy faster.

Get Started With Building Things Up

First, get into the mindset that you are saving with a purpose. That means specializing your finances by opening a dedicated emergency savings account. Label it appropriately so you know it’s off-limits in most situations.

When opening a purpose-built savings account, be mindful of its terms. For example, some savings accounts may put a hard cap on monthly transfers—hardly ideal in an emergency.

Be on the lookout for accounts with features that make using them in a pinch easier, like a separate checkbook or debit card. Remember to be mindful of everything that comes with the account! That means stowing away any included cards or checkbooks until they’re absolutely needed.

After establishing your new account, start contributing to it. Start by depositing however much you can spare, and then contribute small amounts regularly. This is where the money you’ve saved from grocery shopping or refraining from luxury purchases comes into play, too.

Setting up a direct deposit periodically can help foster this habit. Start small, perhaps $150 per month, and then you can adjust that amount depending on your needs. It’s OK to adjust this number, so long as you make saving a habit.

Revise Your Goals and Savings Strategy Regularly

In many ways, building your emergency fund is a lot like budgeting: have a goal in mind and stick to a process. It’s also natural to adjust your strategy as your life changes.

You may want to start with a savings goal of three months’ worth of expenses. These are expenses—think essentials like your rent/mortgage, commuting costs, food, and utilities. The idea is to get a fund going that can give you some breathing room as you adjust to change.

On a long enough timeline, you’ll find that you have reached your savings goal. In that case, congratulations! At this point, you may want to continue saving or even set your sights a little higher. Having a year’s worth of savings is much more comfortable than six months’ worth, and it’s even better than three.

Being prepared for unwelcome surprises can make a difference in your daily life. By dedicating some of your finances to emergencies, you are taking actionable steps toward navigating uncertain economic times.


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