A recent survey found that more than one in five Americans has no emergency savings set aside for unexpected financial events such as job loss, home and car repairs, and medical bills. Nearly two in five couldn’t afford an emergency expense over $400. Finance experts typically advise having at least three to six months of living expenses saved for emergencies.
Knowing where to start can be overwhelming, but a finance expert and bestselling author has outlined steps to build a three-month emergency fund. The first step is to know your monthly expenses. Tally up the costs of rent/mortgage, food, utilities, and essential insurance premiums like health, home/renters, and car insurance.
No guessing is allowed. Multiply your monthly expenses by three to determine your savings goal. Next, divide that sum by 12.
For example, if three months of living costs are $7,500, you would need to save $625 monthly to have your emergency fund within one year.
Building an emergency fund
If that’s not doable, divide by 18 to see what you need to save to meet your goal in a year and a half.
The second step is to set up a savings account at a federally insured bank or credit union. Commit to an automatic deposit from your checking account into this new savings account. The transfer should be free, and the savings account shouldn’t charge fees for a minimum balance.
The final step is to check your savings account once a month and give yourself credit for what you have already achieved. Every month your account grows, building financial security and helping make life less stressful.
Following these steps and staying consistent can gradually build a three-month emergency fund. This financial cushion will prepare you for unexpected expenses and provide peace of mind during challenging times. The key is to make saving a priority and stick to your plan.
