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by Hillary Patin

The Ultimate Emergency Fund Guide

Saving for an emergency fund can be hard, but it doesn't have to be. You can start saving as soon as today, or whenever your next paycheck hits your bank account. Since who (you) and when (now) are already covered, we'll cover the what, why, and how to start saving for an emergency fund.
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What is an emergency fund?

An emergency fund is a pot of accessible money that you have set aside just in case an expensive accident comes your way. That means the money has to be in your bank account or in cash, not tied up elsewhere. While the actual amount may vary depending on who you ask, many financial experts recommend that your emergency fund be three-to-six months’ worth of living expenses. You’ll want your fund to cover your housing, food, utilities, healthcare, transport, and debt—the basics.

If you set aside money for an emergency fund, that money should only be spent on emergencies, and not on your wish list. If it’s too tempting, start a wish list fund to dip into so that you leave your emergency fund alone.

Why should I start my emergency fund?

This point is important because starting an emergency fund isn’t the most intuitive thing to do. Once you have some cash flowing in your bank account, it’s tempting to either spend it, use it to pay off debt, or put it somewhere where it can work for you by gaining interest—like your 401k or the stock market. But the job of your emergency fund is to just sit there—for good reason.

You should start an emergency fund to give your future-self the peace of mind you deserve. If your car breaks down, you lose your job, have a leaky roof, or a family pet that needs surgery unexpectedly, you will be unbelievably better off and less stressed with an emergency fund in hand.

The best thing about having an emergency fund is that when the expensive and unexpected slaps you in the face, you have options. For instance, if your car broke down, you could either choose to have it fixed ASAP by using your emergency fund, or you could use it as an opportunity to try out carpooling or public transport to save money. Without an emergency fund, you’ll likely be stuck with fewer, more stressful options.

How do I save up enough for my emergency fund?

As mentioned above, saving up for an emergency fund is tough when there are so many other things you could be doing with your money. Use these five steps to make it manageable:

Think of it like a bill

Your mindset cannot be underestimated when you’re trying to save money. If you’re pretty sure it’s going to be impossible, then it will be. If you think of saving up for your emergency fund like a monthly bill you have to pay and you review why it’s a good idea to save for an emergency, the chances of you saving are immensely higher. Set yourself up for success by checking your mindset.

Start small with an account buffer

While the ultimate goal is to get three to six months’ worth of living expenses or even more saved up, that can seem like an overwhelming sum of money if you have little-to-nothing saved currently. Remove that mental barrier by starting with a smaller goal, or an account buffer. An account buffer is accessible cash that sits in your bank account just like your emergency fund, but it’s only one to two weeks of your income. An account buffer protects your account from overdraft fees, declined cards, and bounced payments, which is especially useful if you have a lot of automatic payments set up. Once you have a solid account buffer sitting in your checking account, you’ll be well on your way to an emergency fund. Even if you can only save $10 or $20 a week, it adds up over time.

Find an income source

If you’re having trouble coming up with where you’re going to get money for your emergency fund, or you feel like saving up $20 a month isn’t going to get you your emergency savings soon enough, you have two options: figure out where you can cut costs, or figure out how you can make more money.

Looking to cut costs? Think big first, then small. For example, taking an hour out of your day to lower your monthly phone bill or downgrade your car so that you can pay less each month are one-time things you can do this week that will result in large savings into the future. These options will get you the most bang for your buck since they take little time and can save you a lot of money over time. Only after you’ve exhausted those options should you turn to things that will take you more time and save you less money, like clipping coupons or trying to skip your daily coffee.

If you’re looking for places to earn more money, don’t forget about your tax refund. Rather than blowing your refund on something frivolous, commit yourself to saving your tax return for your account buffer before you even get it. All of the sudden, you’ll have a good chunk of savings just waiting for an accident to happen. If you’re looking to make more money regularly, consider freelancing online or offline, a part-time job, or partaking in the sharing economy. Check it out—it might be easier and more fun than trying to cut costs.

Make it automatic

The easiest way to save is to make it automatic. That’s why Simple customers who use Goals save about twice as much as those who don’t. Set up a Save over time Goal to move money into your Goal automatically. You’ll save money without even realizing it.

Work your way up

After you’ve successfully saved up an account buffer, or one to two weeks of your income, you’re well on your way to creating a sizable emergency fund. The difficult part of saving isn’t necessarily about how much you’re trying to save, but rather getting in the habit of saving in the first place. And remember: if you start earning more money, don’t forget to raise how much money gets funneled into your emergency fund Goal.

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