Life happens. It's not a matter of if something will happen, but when will it happen. Are you prepared for an unexpected event such as a flat tire, an emergency room or doctor’s visit, a broken appliance, a sick pet, or an unplanned school activity? When you are prepared financially, you are better equipped to handle the unexpected.
Having an emergency fund can reduce financial stress, reduce the chances of using credit cards, and reduce the need for borrowing to cover these expenses. An emergency fund should cover at least three to nine months of expenses. Those expenses include housing, transportation, food, insurance, and debt repayment. If you are unsure where to start, here are a few tips for establishing an emergency fund. (Check out our Financial Resources page for worksheets to help you budget for an emergency fund.)
Create a budget.
The first step to establishing an emergency fund is to create a budget. A budget is a spending plan for your money. It shows your income and expenses. It is helpful to track your expenses for 15-30 days to identify your expenses. Tracking this information will allow you to see how you are spending your money and where you can reduce your expenses.
Set a financial goal.
How much do you need to save for your emergency fund? After establishing your budget, you will have a realistic picture of your finances so you can set your financial goal. You may start by setting a goal to save $500 over the next 12 months for the emergency fund. Our Financial Goal Worksheet will help you plan your financial goal, and the Emergency Fund Worksheet will help you determine how much you should save for three months of expenses. The key to reaching your goal is planning, discipline, and consistency.
Have a designated emergency fund account.
Open a checking, savings or money market account specifically designated for emergency funds. By establishing a deposit account, your funds will be easily accessible when an emergency happens. AllSouth offers Savings and Checking Accounts that can help you save for your emergency fund.
Set up automatic savings.
Out of sight and out of mind. The easiest and quickest way to save is to set up an automatic deposit. Through your employer, you can deduct the amount you want to save from each paycheck into your designated account. If this option is unavailable, you can arrange with your financial institution to set up an automatic transfer from your account.
Stick with your plan.
To save for your emergency fund successfully, you must be willing to take action and stick to your plan and check your progress until you reach your goal. It can be challenging at times, but once you have a plan and start saving, you will have peace of mind knowing that you can handle an unexpected expense when it occurs.