How to Create an Emergency Fund

December 11th, 2020 by

Photo by Andrea Piacquadio / Pexels

Job loss, health issues, sudden home repairs—there are a lot of unexpected life events that will hit you directly in the bank account. How do you prepare for emergencies like this?

Creating an emergency fund can help relieve some of the stress of these situations.

Set Aside Some Money

TransUnion suggests that you set aside 10% of each paycheck you get into an emergency fund. The aim is to get at least six to eight months’ expenses into your account. 

Create a Budget

Creating a budget will help so you are aware of your financial ins and outs each month. Here are some tips on how to maintain a budget, from Experian.

  1. For starters, be familiar with your income and home much you bring home after deductions.
  2. Jot down all of your expenses that leave your account regularly. For example, rent or mortgage, utility bills, food, car payments, etc.)
  3. Take note of all non-essential living expenses, like streaming platforms, cleaning services, trips to your favorite coffee shop.
  4. Deduct your essential and nonessential expenses from your income and determine what your output is and how much you have left or need to shave off.
  5. From these numbers, you are able to put together an idea of your total budget and possibly reduce any unnecessary expenses.

Related: How to Create and Maintain a Budget

Financial guru Suze Orman also recommends saving an eight-month emergency fund.  

“The best way to plan for the next crisis is to focus on your emergency fund,” Suze Orman said on her website. “For more than a dozen years, I have been insisting that it is wise to have eight months of living expenses set aside in a safe savings account.”

Orman recommends taking a look at what changes can be made in your spending and saving as little as $10-$25 each week. 

“That’s how an eight-month emergency savings account is built: slowly, over time, by finding ways to reduce your spending,” she adds.

Saving for a crisis can have a big impact on your financial future and be a nice safety net should you ever need one.

 


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