How To Start Your Emergency Fund

One of the crucial components to your financial foundation is to have an emergency fund (I know, not breaking any news here). Having an emergency fund lets us navigate life’s curveballs (medical bills, car repairs, home repairs, etc.) without having to spiral into credit card or other high interest debt.

But there is often a significant difference between knowing we should do something and taking the all important first step to action. Let’s look at a few simple steps to starting an emergency fund on the way to improving our overall financial stability.

Step 1: Review your spending plan

The purpose of this post isn’t to get in to budgeting (I prefer the term “spending plan”), but one of the biggest hurdles most people face in getting started is the feeling that there just isn’t any money left over to save. To get over that hurdle, try these ideas:

  • Pay yourself first – If your intention is to save whatever is left over in your checking account at the end of each month, it is likely you’ll find there isn’t anything left to save. If you’re like me, money in the checking account finds a way to get spent. Shift your savings intention to the top of your monthly budget – make it a priority and put the money there before you start spending!
  • Find the money – Once you pay yourself first, you may need to find an area or two to cut back in the rest of your spending plan to make it happen. If you decide that you are going to save $50 per month into your emergency fund, look for small adjustments you can make elsewhere to make that happen – it could be as simple as skipping five $10 fast food meals per month.

Step 2: Automate!

Set your saving commitment up to happen automatically – you’ll be surprised the impact this has on getting your emergency fund up and running. I suggest setting up an account at a different financial institution than your checking account. You want to have the two accounts linked but having them at separate places lessens the temptation to move money out of your emergency fund.

Once the account is set up, set up either an automatic transfer from your checking account each month, or check with your employer to see if you can have funds deposited automatically from your pay into your emergency fund.

Step 3: Set milestones

Most financial planners suggest having 3-6 months’ worth of expenses in your emergency fund. That can be a considerable number and seem almost impossible when starting at zero. Make that a stretch goal and instead shoot for having $1,000 to start, then $2,000 and so on.

When you reach a milestone, be sure to celebrate that accomplishment! By having milestones on the path to the goal, it makes a game of it and helps you realize that every dollar saved gets you closer to winning the game. That momentum builds quickly, and you may find you are wanting to save even more to reach your goals along the way.

Getting started is the hardest part

Taking these few steps will help you on your way to building that emergency fund, and hopefully it will be easy riding from there. Like most things, getting started is actually the hardest part. Once you start, it becomes a habit and will make an enormous difference in how you view your own financial situation.

Being able to take that next emergency in stride financially gives you the power to accomplish other financial goals as well. So get started today and know that you can do this!

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