How to Start an Emergency Savings Fund

Unlike a usual savings account, which you use to put savings towards a specific goal, an emergency savings fund exists to provide a financial cushion for unexpected circumstances that leave you without a steady income. Ideally, the account will keep you financially afloat for three months. That may seem like a lot of money to keep in your bank account, but remember that in an emergency you’ll be happy for any amount of money saved because it will buy you time to find a long-term solution.

Calculate the ideal saving rate

Your first step should be to calculate the ideal amount to save (be sure to use our savings account calculator to help you get an accurate estimate). In this case, that means enough to maintain a simplified version of your lifestyle. Add up a month’s worth of daily necessities, such as rent or mortgage payments, bills, groceries, and car payments. Exclude expenses you can do without in the case of an emergency, such as new clothes, going out to eat, and other simple luxuries. Once you’ve calculated this number, multiply it by the number of months for which you’d like to plan.

Remember that this is your ideal and shouldn’t stop you from starting your fund at a saving rate with an easier mark to hit. The stash can be used for smaller financial emergencies, such as an unexpected car repair, medical procedure, or travel to attend to a serious family matter, but remember that the intent is to keep this money stored as an asset at all times and replace it as soon as possible if a financial emergency drains it.

Choose a savings account

When choosing a place to stash your savings, consider a place where you’re less likely to dip into the money for other expenses. Here are some ideas for where to stash your funds:

Start your savings program with these money saving tips

Next look at your spending habits and find small ways to set aside money. One of the benefits of this kind of savings account is that since you’re planning for a day that will hopefully never arrive there is no set time frame by which you need to have your savings in hand. Below we’ve listed some suggestions to help you decide what works best for you:

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