Setting up an emergency fund

An emergency fund should be a crucial part of everyone’s budget. Why? Because the unexpected tends to happen when we, obviously, least expect it. When an emergency arises, you want the funds to cover it without having to worry about where you are going to get the money. The goal is to avoid creating debt by using a credit card. Your emergency fund at a minimum should be equal to 3 months of your regular living expenses, and you should aim to eventually save up 6 months worth or more.

First step is to set up a high interest savings accountlike ING Direct or FNBO Direct. Then, pick a set amount each month to transfer to your new emergency fund. The more you can afford to set aside, the quicker your emergency fund will be fully funded. Try saving at least $50 or $100 each month. If you can only afford to save $20 per month, do it. Something is always better than nothing.

Next step is to treat this like a bill. Just like you pay the electric company every month, pay a set amount in your emergency fund every month. Commit to your emergency fund like it’s a regular expense and you shouldn’t have any problems hitting your goal in no time. Check out my post on ways to boost your savings for more ideas on reaching your goal quicker.