Building an Emergency Fund

As much as we prepare for life’s events, the unexpected can happen. Your pet might need a costly treatment. Your vehicle could break down and require repairs. You could damage your phone and have to replace it. Any one of these unplanned expenses could impact your budget significantly. Would you have the money to cover these financial surprises? That’s where an emergency fund comes in.

What Is an Emergency Fund?
An emergency fund is money that you have saved to help you cover unexpected costs that come with everyday life. This could be a medical emergency or home repair. Many of these costs cannot be predicted, but nearly everyone will face these kinds of expenses throughout their lives. Experts say it’s smart to build and maintain an emergency fund with three to six months’ worth of living expenses.

How Do You Start an Emergency Fund?
Start by setting a monthly savings goal and set up the funds for automatic transfer to a savings account. That way, you will be saving money without even thinking about it. You will want to take a close look at your finances to ensure that you are not saving so much money that you can’t pay for other everyday costs, or so little that your savings won’t cover a potential emergency.

Where Should You Keep an Emergency Fund?
Savings accounts are the safest place to keep your emergency fund so that you won’t be tempted to dip into it. Emergency funds should be kept fairly liquid so you’ll be able to access them quickly if an unexpected expense comes up. If you need to use your emergency savings, you’ll be glad they’re available.

How Much Should You Save?
The size of an emergency fund will probably change as your financial situation does, so it’s important to revisit your budget and make sure you’re covered. The key to building an emergency fund is to set money aside every month, no matter how small the amount, to reach the three to six months’ worth of living expenses as soon as you’re able.

Check out this Emergency Fund calculator to determine how much to put aside.