Only one in four Americans has an emergency fund that meets most experts’ minimum recommendations – one that would cover their expenses for three months if their income was cut off. What is an emergency fund? Why do you need one?
An emergency fund can help relieve stress and give peace of mind. The recommended minimum goal is to save an amount equal to three or more months of living expenses. You might use this fund for emergencies such as: an unexpected car repair bill; new glasses for your child; or living expenses if you lose your job.
Try to save 10 percent of your paycheck. If you save 10 percent each pay period, it can take up to two years to build an emergency fund. Put your emergency fund into a savings account, so the money will be available when you need it.
One way to start is to pay yourself: think of savings as a bill which needs to be paid. Along with saving from your regular weekly or monthly paychecks, you can speed your progress by saving lump sums of money such as tax refunds, bonus payments, and gifts. Even saving loose change can add up. Keep envelopes addressed to your bank together with your monthly bills. Send money to your savings account when you pay your monthly bills. In this way, you pay yourself first.
By saving money – either small or large – you will have your emergency fund available when you need it.