4 Simple Steps to Finally Starting an Emergency Fund

By now you may be sick of hearing about how everyone should have an emergency fund set aside for the "what-if" scenarios. You know you are supposed to have 3 to 6 months of living expenses in a secure place that can be easily accessed if needed. Many of you have wondered "How can I save 3 months of expenses when I am struggling to pay off my expenses from just the past month?"

Having an emergency fund provides peace of mind that you can handle the short term bumps that show up along the road of life. It means that you are not living paycheck to paycheck and that you have a little cushion for when the unexpected happens. That's why it is important to make saving for an emergency a priority (after you have paid off any high interest rate debt first). Follow these steps and you'll be well on your way.

Step 1: First get a handle on what your monthly expenses are. In an emergency situation you would still need to keep up most expenses for housing, food, utilities, and other necessities. Track all your expenses for at least 3 months to get a handle on what you are spending each month. Remember that not all expenses are fixed so that if the unexpected does happen (you or a spouse lose a job, for example) you should be able to make some adjustments to free up some extra cash. For instance, you could cancel your cable or gym membership. However, honesty is important here. If your family grocery expenses per month are currently $500, don't think you will start getting by on $200.

Step 2: Now that you have a savings goal in mind, set up a bank account for your emergency fund. I recommend a separate account just for the emergency fund, so that you can track your savings progress better. Start with a goal of 3 months expenses and work up from there, so multiply the monthly expenses you came up with in Step 1 by 3.

Step 3: Start saving. Try to make savings automatic. You may be able to arrange automatic payroll deductions through your employer. If not, set aside a little bit each week and make deposits once a month. Starting with as little as $10 a week can be helpful. If you find it difficult to scrape up some extra cash, try collecting your spare change in a jar at the end of the day. This may seem like an old-fashioned trick, but it works.

Step 4: Watch your savings grow. Don't get discouraged if it seems slow at first. As long as you are saving something on a recurring basis, your emergency fund will continue to grow and as it does, you will start to feel the added security of having this money set aside.

If you follow these steps you will be well on your way to ensuring that you have something set aside for when life throws you a curve ball. Now that you are committed to accumulating an emergency savings fund, make sure you stay the course.Treat this account as sacred and not to be touched unless a truly unforseen event comes your way.