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How to Start an Emergency Fund

How to Start an Emergency Fund

Who wouldn’t love to have money just sitting around, waiting to be used in case of an emergency? Who wouldn’t feel better about having money when you need it, instead of going without or using a credit card during the lean times? Most everyone will agree that an emergency fund is a good idea, but knowing this is only the first step though. The next step is to decide how much of a fund you initially want to have. I’d recommend whatever seems like a relatively easy goal to you: maybe somewhere between $500 and $5000. The most important step is to actually build your emergency fund. Depending on your situation, you can go about this in different ways.

One of the easiest ways is to set up an automatic transfer each pay period to an account that you’ve designated as your emergency fund. Choose an amount that you know you can live without, because you’ll probably want to tell yourself that once it’s in there, it stays in there unless a pre-defined emergency comes up AND you can’t find the money elsewhere. For this reason, when I finally got my emergency fund going I made the amount that was sent to it on a regular basis somewhat low. That was my minimum commitment. Of course I also added additional amounts as I got extra money or realized that I wanted to build the fund up faster, but I made sure to stick to my original commitment throughout. Doing this helps maintain traction.

Another way to start an emergency fund, especially if you don’t get paid regularly or in set amounts, is to start a change jar or emergency envelope. This works best if you have cash on a regular basis, because at the end of each day you can simply dump your leftover cash into the jar or envelope. Once it hits a certain amount, take it to the bank. You can do something similar with a program like B of A’s Keep the Change. You’ll be surprised at how quickly even a little bit adds when you’re committed to not spending it.

View Comments (4)
  • This is a good article and something I have been working on teaching my children. Funny, its my 19 and 20 year olds who have trouble saving. The younger two have no issues! I guess it comes down to temptation and ability to party.

  • Good article! The amount required in an emergency fund is definitely a personal choice, and really depends on a number of factors. As I am sure most of you know, Dave Ramsey is hardline about having $1000 if you are in debt, no more, no less. We are currently getting out of debt but realized that $1000 wasn’t really enough. We have two older cars and 6 children, so we felt more comfortable with a $2000 “baby” emergency fund.

    I would also highly recommend couples define what qualifies as an emergency. We actually spent time writing out a list of items that qualify as emergencies. This will offer an agreement to avoid the problem of viewing that “on sale” 60″ Plasma TV on sale as an emergency.

    Again, nice write up, and thanks for sharing!

  • I recently had to dive into my emergency fund and now I’m building it back up. It saved me even more expenses. A real life saver :)

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