US financial advisors and money experts recommend most Americans have a dedicated emergency fund. Sure, it’s less glamorous than saving for a new car or house, and it feels less timely than saving for a new baby. But it’s always the right time to make sure you have an established emergency fund set aside in case of unexpected life events like a job loss, medical emergency, home repairs, or any other situation that can require extra funds.
While the idea of setting aside a large sum of money is daunting, there are a few steps you can take to make the process so simple and seamless, that you almost forget about it — until you need it.
Set a goal.
The first step in any savings plan is to figure out how much you need. Items like a car or a house require more set costs, but experts advise having between three and six months of living expenses set aside in case of an emergency. The minimum you will want to save will depend on your circumstances and comfort level, but there is no ceiling when it comes to contributing to an emergency fund.
Create a budget.
Sit down and review your income and expenses to determine how much you can save each month without creating too much extra anxiety. Look for opportunities to cut spending, and funnel that money toward your new emergency fund.
Open a dedicated bank account for your emergency fund.
Many banks will accept a variety of identification sources to open an account, including an Individual Taxpayer ID Form (ITID), a passport number or another government-issued ID from a foreign country. Set up an account that’s separate from your main source, and select controls that make it harder to access the money, so it has the chance to grow. (Not setting up a debit card for the account, for example.) Also consider seeking out a high-yield account, which will collect more interest while it sits.
Deposit a set amount per month, no matter how much.
Setting aside even $5-$10 a month may not seem like much. But when you’re not touching it, that money can accumulate quickly. Set up a monthly transfer or deposit to ensure your account keeps building. Bonus: a dedicated monthly deposit could also work to keep your account free, as set deposits can eliminate monthly fees on certain accounts.
Cut spending.
Summer is a great time to cut costs, as the warm weather allows for walking or biking to save on gas, picnic date nights, more affordable produce and plenty of family time at parks and free splash pads. With some summer-centric planning, you can cut extra spending and put more money toward your emergency fund.
Increase income.
If you have time, energy and motivation, do your best to increase your income. Take on a second job, work on a freelance project or start a side hustle that you can do at home, then funnel the extra income into your emergency account to get to your goal faster.
Monitor your progress.
Keep an eye on your budget and savings progress and adjust as needed. If you are ahead of your goal and feel like you can dial back a bit, go for it. If you are behind, figure out how to add more to your savings each month. Above all else, stay close to your progress so you keep your goal at the front of your mind.
Celebrate milestones.
Saving three to six months — or more — worth of monthly expenses is a big accomplishment. Be proud of yourself! Acknowledge and celebrate your achievements along the way to help stay motivated to continue to meet your goals.
Above all else, avoid tapping into your new emergency savings if at all possible, especially for non-essential purchases. You’ll be able to rest a little easier knowing that if something happens, you have a financial buffer to help you through the tough times.
A few quick, strategic decisions can make sure you’re building that emergency fund, allowing you to provide for yourself and your family when you need it most.
