How to Build Up an Emergency Fund
An emergency fund is critical to have for your financial survival. You just never know what could come up or happen. You could lose your job or have an unexpected bill. It’s beneficial to start small so you don’t feel overwhelmed.
Start With One Month of Income
Most finance experts say that you should have a goal of at least six months of income in savings to cushion you in case of emergencies. A good way to start an emergency fund is to start small. Set your first goal as having one month’s income in a savings account. This will allow you to build it up slowly so you don’t feel discouraged and can stick with it.
Working Your Way Up
Once you have the equivalent of one month’s worth of income in savings, you can go up a bit more, maybe three months worth of your income. Next, you could either go up another month or move on to the six months. Once you have your six months emergency fund saved up, you should have three months of income in a money market account so it can earn interest. You want to make contributions automatic by setting up payroll deductions, if available from your employer, or set up an automatic transfer from your checking account to the savings account to get the emergency fund started and keep it funded.
Other Tips to Build Savings Faster
Another way to bolster your emergency savings fund is to use any cash gifts you receive from anyone so you can hit your goal faster. Be sure to reward yourself once you hit your goals. Rewarding yourself allows you to realize you’re not restricted, you are just setting aside your money to protect you when you need it most.