How You Can Create an Emergency Fund

Household budgeting can be intimidating, mainly because people envision having to create a giant spreadsheet and track every penny they spend. It’s easier to think of budgeting as planning, with at least a general idea of your fixed expenses and how much you typically need for unexpected expenses monthly, along with what you’d like to be able to spend on discretionary purchases. You’ve heard it before from the experts: a vital part of your household budget2 is an emergency fund. By having a basic understanding of your income and outgo, you can begin to set aside money to build that fund.

Start With an Emergency Fund

An emergency fund is a savings account that typically consists of three to six months’ worth of fixed expenses, money that you can use in the event of a job demotion or loss, a big medical expense or an unexpected repair whose cost exceeds what you can pull from your checking account. In a recovering economy, it can be tough to think about setting aside enough for an emergency fund, and if you don’t have the funding yet but find yourself faced with a large unexpected expense, you may have to consider cash advances, short-term loans that can cover an expense you can’t ignore.

If you start building your emergency fund now, though, you may be able to avoid ever having to borrow money to pay for the unexpected.

Consider These Tips

Creating an emergency fund on a minuscule scale is better than doing nothing at all. To begin the process of setting aside money for an emergency fund, consider:

  • How much money you waste every month — on restaurant meals you don’t finish,     extra trips to the grocery store and minutes on your cell phone you’re paying for but     don’t use. Some analysts estimate consumers waste up to 10 percent of their income every     month.1 That’s money you could be funneling instead into an emergency fund. It     may take some time to calculate how much you’re spending unnecessarily, but     wouldn’t a few simple changes be worth being able to save at least $300 yearly?
  • Making a small sacrifice once a week or more. Skip your morning latte every Wednesday,     bring your lunch to work on Thursday or walk, take the bus to work on Friday. It’s an     easy way to save an extra $5-$7 weekly, which translates to as much as $28 monthly for your     fund.
  • If you typically get your haircut every six weeks, stretch it to every seven and save     another $25 to $100 yearly.
  • Collecting your family’s spare change at the end of every day. This can include coins     and bills. Put the money into a jar and at the end of the month, put the money into your     emergency fund.1
  • Scheduling regular transfers from your checking account into your designated emergency fund     using online banking. That way, your money is on a schedule, to, and it’s one less thing     you have to remember.1

You’ll be happily surprised by how much you’ll have in your fund by the end of one year if you’re diligent and persistent, saving every dollar you can monthly.

Guest Post By Michelle Campbell-Michelle loves to make the mundane exciting. She shares tips on how to go on great vacations without breaking the bank.

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