Here’s How to Set Up Your Emergency Fund
We’ve all had big expenses we didn’t see coming. That’s life. But that future (inevitable) car repair doesn’t have to stress you out.
Next time, use your emergency fund! This “rainy day” money provides a cushion between you and all the stuff that hits the fan.
Here are four common questions about emergency funds and how to set yours up:
1. How much should I save? We recommend a starter emergency fund of $1,000. That’s an amount you can save quickly and still cover most issues. Eventually, you’ll want to build it up to three to six months’ worth of expenses. But that’s later. For now, focus on getting it started—and fast. Do this before you pay down debt or save for anything else.
2. How do I find the money for it? You never know how much extra money is in your budget until you make one. You’ll probably find cash you didn’t know you had! Plus, you can cut back in a few areas (like restaurants and entertainment) and find even more. You can also boost your savings by selling stuff online or picking up a bit of side work.
3. Where should I keep it? Put a category marked “emergency fund” in your budget with a certain amount you want to save each month. This account will gradually build up and be ready to cover your immediate needs—like your heater making that-can’t-be-good noises when it’s freezing outside! Keep this cash in your regular bank account, or transfer it over in a new account when it hits $1,000. It’s up to you!
4. What happens when I’m done saving? Once you have enough saved for emergencies, focus on your other debt or savings goals. But when you use your emergency fund, be sure to refill it as soon as possible. That way, it’ll be waiting for you when you need it next (and you will!).