How to Build an Emergency Fund
You probably already have a checking account, but what about an emergency fund? Financial experts recommend saving money into a separate savings account to help cover emergencies, unplanned bills and other expenses.
Whether you have a job or are currently looking for work, an emergency fund can help protect your credit score and prevent you from financially falling behind. Need to start a savings account? Use this guide to build your rainy-day fund.
Start With a Savings Goal
You’re 42% more likely to reach goals that are written down. Why does writing down a goal motivate us so well? Putting goals down on paper helps to identify the objective as we start to work out a solution to achieve it.
How much do you need for an emergency fund? Ideally, a rainy-day savings fund should be sufficient enough to cover day-to-day expenses in case you lost a job. That’s why financial experts recommend aiming for roughly three to six months’ worth of expenses in an emergency fund. If you’re just starting your savings fund, aim for $500 and build up from there.
Evaluate Your Budget
How much money can you reasonably put aside from each paycheck? Comb through your monthly expenses and look for ways to cut costs. Divert the money saved into a separate savings fund. Whether your budget allows for $5, $10 or $100 more from each paycheck, aim to put money aside every payday.
If you need to build an emergency fund quickly, eliminate non-essential purchases whenever possible. Regardless of your income level or financial goals, you can likely find small ways to trim your budget that can add up over time. Use these tips to stretch your money further:
- Don’t have a roommate? Living alone can be expensive, but there are plenty of ways for single-person households to cut costs.
- Grow your own food for free! Learn what foods you can plant and regrow at home.
- Have you recently lost a job? Use this guide to access local resources to help save money, pay for essentials and more.
Saving money is easier when you don’t have to lift a finger! Set up a paycheck funds transfer into a separate savings account if you have a regular pay schedule, or use one of these convenient automatic saving apps to stash money away as you go about your day.
Monitor Your Progress
Check in on your goals once or twice a month to monitor progress, make budget adjustments and celebrate your success. Set periodic calendar reminders to keep an eye on your finances, or use the latest banking and budgeting apps to view your accounts from one convenient place.
Grow Your Savings
You can grow your emergency fund with a higher rate of return using a safe investment product. Some accounts, such as high-yield savings accounts, offer higher interest rates than standard checking or savings accounts. High-interest savings accounts are also FDIC-insured and easily accessible in case you need to quickly withdraw money to cover expenses.
The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.