7 Ways to Cover Your Assets and Your A: How to Start an Emergency Fund

An emergency fund defined

An emergency fund is a separate account kept as a future safety net for unexpected expenses. This dedicated savings is set up so you don’t have to rely on credit cards or a loan to be able to take care of business, and so you don’t get caught in a debt storm. The Consumer Financial Protection Bureau reports even minor monetary emergencies could set a person back from financial security, and if the situation snowballs into debt it could have lasting results.²

Emergencies

These helpful examples give an idea on when to use your emergency reserves.

• You accidentally rear-end someone else’s car and you need help paying the insurance deductible.
• Your washer dies and leaves a soapy mess in your laundry room.
• You get sick and can’t pay your bills.
• You lose your job and need help paying rent.
• Your house gets hit by a massive hail storm and you need a new roof.
• You break your arm from a fall…when you were checking out the roof damage…and now you can’t work.

Emergency fund benefits

Just like retirement and personal savings accounts, an emergency fund is important because it creates some monetary security. A Bankrate survey shows only 40% of U.S. adults would be able to cover a $1,000 unexpected cost like an ER visit or repair bill. And 28% said in the last twelve months, they or a close family member had a crucial unforeseen expense. ³ Yikes! If you have kids, that could be a fall from a bike and a broken arm or even a fender bender! But there’s no need to put extra pressure on yourself. Remember, we’re building here. This account doesn’t have to accumulate all at once.

• An emergency fund is not another stressor; it’s supposed to be a stress reliever.
• Having a back-up account can give you peace of mind so you can focus on fixing the problems at hand, without worrying about how you’re going to pay for it.
• With an established reserve you could help stave off future debt problems due to emergency costs.
• You can start with just a small amount at first, and build over time.

Step 2: Look at your budget

Yep, I said the B word. If you need help building your budget, don’t be afraid of doing a little research. You could even utilize Bankrate’s Home Budget Calculator for budgeting help. Once you know your expenses and how your money is coming and going, you can figure out how much to send into your separate emergency account.

• Calculate your monthly income.
• Figure out your monthly bills.
• Subtract your bills from your income.
• How much can you put aside into your emergency savings? Even $10 is a start!

Step 4: Available funds shouldn’t be a temptation

To ensure that your funds stay strictly for emergencies, keep them in an account that you won’t be tempted to access.

• Try a savings account at a separate bank from the rest of your accounts.
• If all your accounts are at the same bank, keep account numbers and info in separate safe places so as not to mix them up.

Step 6: Continue to save until you hit your goal

You know when you determined how much you needed all the way up at number one? That’s your goal.

• Keep putting aside money and making deposits to build up your emergency fund.
• And when you hit that goal, put those funds toward other financial goals such as retirement, building credit, saving for college or preparing for home ownership.

Save for the future you want

Starting an emergency fund can feel intimidating and overwhelming, but large unexpected costs with no resources could be worse. You can start your reserve slowly with a good plan of action. Figure out a reasonable amount as your goal, find where you can save, deposit funds in an accessible, interest yielding account, and make those deposits a habit. Once you set this financial goal and stick with it, your savings will grow and you’ll be one step closer to financial security!