There are many people who decide, at the start of a new year, that this will be the year they manage to save more money. It has been said that having an emergency fund of money, that you don’t touch unless there is an emergency, is a good idea. Here is some simple advice on how to start an emergency fund.

How to Start an Emergency Fund

An emergency fund is a savings account that is set aside to be used after an emergency has happened. The purpose of having an emergency fund is to be certain that you, and your family, have a “safety net” of funds that can be used to get through a very difficult time in your lives. The emergency fund can help prevent you from having to resort to paying bills with high-interest credit cards.

How would your family survive if the major “breadwinner” were to lose his or her job tomorrow? Can your family pay for hospital bills that are not covered by your health insurance plan? If your hot water heater broke tomorrow, and needed to be replaced by a new one, can you afford to do that? These types of situations are among the reasons why you need an emergency fund.

The first thing to do when you start an emergency fund is to figure out a target number that seems possible to accrue. Ideally, you want that number to be three to six months of your salary or take home pay. Take that amount and divide it into smaller, weekly, savings goals.

It helps of you start to think of adding to your emergency fund as mandatory. In other words, think of “paying” your emergency fund as having the same importance of paying your other bills. This forces you to put some money away for later.

It also prevents you from deciding to “blow off” adding money to your emergency fund in favor of a fun, but unnecessary, expense today. Remember that the purpose of having the emergency fund is so there will be money to sustain your family in times of trouble.

You may find it helpful to keep track of your saving goals. Take note of what you did to come up with the money to put into your emergency fund each week. For example, it is worth it to figure out how much you saved by bringing your lunch with you to work instead of buying your lunches from a fast food place. You might feel a bit better about making small sacrifices if you can see how your actions are helping you to reach your savings goals.

Posted in: How to Save | Comments (1) | Join Discussion