Saving for an Emergency Fund

According to Bankrate.com's Financial Security Index, 28% of Americans do not have any money set aside for emergencies. In addition, their survey concluded that only 1 in 5 people have an emergency fund to cover less than three months of expenses. Although, there has been a slight economic recovery, there are still those losing jobs and having emergency situations arise where an emergency fund could have saved a home or kept someone from going into debt by being forced to borrow money.

Most experts suggest having anywhere between three to nine months worth of living expenses saved in the case of an emergency. This can seem overwhelming to someone who happens to have nothing saved, so it may be good to start with a smaller goal and build the fund from there. A goal of saving even $500 can help people realize they have the ability to save even more. If there is very little room in the budget, then saving smaller amounts like $10 a week can eventually make an impact, as well.

The first step in setting up an emergency fund is to open a savings account exclusively for emergencies. Making the payments automatic will ensure success. If the money will come from a paycheck, employees can have their employers set up a direct deposit into this account. That way the temptation is not there to use the money for other things.

The next step to building an emergency fund is tracking expenses for about a month and creating a budget. Most people will find they spend some money unnecessarily and they can reroute those funds into a savings account for emergencies. Cutting back on things like buying coffee at coffee shops or eating out can free up a good amount to save for many people.

Another way to get a jump start on saving for emergencies might be depositing federal and state tax refunds into the savings account. A good portion of Americans receive some kind of refund and this can have an impact on the amount saved.

Also, if someone is granted an increase in pay, the person can continue to live on the former amount of pay and can save the increase in the emergency fund account. Smaller habits like saving loose change in a jar can help, too. Once the jar is filled, the change can be deposited into the account.

Planning for the unexpected can provide much needed financial security for people in this unpredictable economy. A great resource for financial education for all stages of life is MyMoney.gov. The tools featured on this site include budgeting worksheets and checklists for people who want to make informed financial decisions.