How to Start an Emergency Fund

Piggy bank floating in water
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Sickness, job loss, home repairs, car repairs—there are so many things that can rock your financial boat. Are you prepared to handle them? Start an emergency fund, and you won't have to wonder.

Start an Emergency Fund in 6 Easy Steps

  1. Decide How Much You'd Like to Save: $1,000, three to six months' living expenses, a year's wages—there are a lot of opinions out there about how much money you should put into an emergency fund, but the only opinion that matters is yours. Ask yourself how much you would need to have tucked away to feel secure, and make that the amount that you save in your emergency fund.
  2. If the amount you chose is based on a certain number of months' living expenses, proceed to Step 2.
  3. If the amount you chose is a specific dollar amount, skip to Step 3.
  4. Calculate Your Monthly Expenses: Make a list of all of your regular monthly expenses—housing costs, food, utilities, debt repayments, transportation costs, insurance, and all of your other "must-pay" bills. You can use a Build-a-Budget Worksheet to make this step easier. Then, total your monthly expenses, and multiply the resulting figure by the number of months that you chose in step 1. For example, if you need to cover $2,500 in monthly expenses for three months, you'll need to set aside $7,500 in your emergency fund.
  5. Open an Account: Once you've determined how much you need to save, it's time to decide where you'll keep your money. Since you want your emergency fund to remain fairly accessible, a savings account, money market account, or short-term certificates of deposit make good sense. Any one of these accounts will give you the liquidity that you need, while still earning you some interest.
  6. Determine How Much You Can Afford to Save: If you're like most people, it's going to take time to build up your emergency fun—probably even a lot of time. That's okay. The important thing is that you get started today. Look over your finances and determine how much you can afford to put toward your emergency fund each month. Even $10 a month will help, so don't worry if that's all you can afford to do.
  7. Set up Automatic Deposits: Make saving easy by scheduling automatic deposits to your emergency fund. Then, sit back and watch as the balance grows month-after-month.
  8. Find Ways to Boost Your Savings Efforts: Turn a creative eye on your finances, and you're bound to find ways to reach your savings goal faster. Here are a few sources that should help: