Even if you aren’t ready for an emergency, don’t panic. Here are four simple ways to start saving and get on track.
- Take Charge of Your Finances – Building an emergency fund starts with prioritizing saving. Without financial discipline, it’s easy to fall into the trap of putting extra money into savings and then pulling it back out to pay a bill or cover a large purchase.
- Divide and Conquer – When budgeting, think buckets. Separate your money into sub-accounts: one for bills and one for other spending. Deposit your paycheck into your bills account. After paying your rent or mortgage, utilities, any loans, and insurance payments, move what’s left to your spending account. Use money from that account to pay for things like groceries, gas, and entertainment costs.
- Set Clear Targets – How much you need in an emergency fund depends on many factors, but a good rule of thumb is to have three-to-six months of income available. It may also be helpful to save for different kinds of emergencies separately. For instance, you can set up one emergency fund for your homeowners insurance deductible, another for car repairs, and another to cover your living expenses in the event of job loss.
- Uncover Savings One Layer at a Time – Build your emergency savings by looking for extra money first. There may be more than you think. For example, just by paying bills on time saves you in late charges and non-sufficient fund fees.