How to Build an Emergency Fund from Zero

There are so many aspects of life that you cannot anticipate. You never know when you’ll experience a big financial upset like a job loss, an urgent need for home or car repair, or even a medical emergency. A large percentage of Americans are living paycheck to paycheck and find it extremely difficult to save an emergency fund for a rainy day. Despite the difficulty, it is important to have money set aside to get you through those unexpected expenses, so your entire budget is not thrown off by any little bump in the road. 

Starting an emergency fund can be intimidating at first. Especially when you have some huge goal in your mind that you’ve heard is necessary like six months or a year’s worth of living expenses. Even though you might aim for that many years down the line when you feel more financially stable, it’s much better to start small and work your way up. A good goal to start with is to create an emergency fund of a thousand dollars or so in a separate savings account!

Steps to your Own Emergency Fund

1. Analyze your Current Budget

Think about printing out a few months of your bank statements and going over them with a few highlighters, especially if you are a visual person this can be very helpful. Figure out what your income is and what your expenses are. Basically, analyze what your current monthly budget is, including all your debts and minimum payments necessary for credit cards, auto loans, and/or your mortgage. Divide the necessary living expenses and your more frivolous spending habits into two categories.

2. Determine How Much You Can Set Aside

When you have the basics of your budget in front of you, determine how much you have leftover each month to set aside for your emergency fund. Then take a look at the monthly frivolous spending and see if you can cut down on a few of those expenses. Total both of those numbers to determine how much money you will add to your emergency fund every month. 

3. Get a Completely Separate Account

It is vital that you don’t keep your emergency fund in the same place as your spending or billing accounts. Open a separate savings account that you can easily transfer into but won’t be too tempted to transfer out of. This will help you to allow your fund to grow. Plus, savings accounts tend to have higher interest to gain.

4. Set up Automatic Withdrawals and Deposits

Set up a monthly or bi-monthly automatic deposit of your predetermined amount into your emergency fund account. When you make something automatic, you will be far less likely to forget and less likely to spend that money you’ve decided to save. 

5. Re-Assess Every Month to Increase Efforts

Every month that passes, you will likely be invigorated by your progress. Allow this to push you further to see how else you might be able to rearrange your spending to add a little more to your emergency fund so that every month you add a bigger contribution.

Building your own emergency fund is not as difficult as it has been made to seem. It’s all about starting small, strategizing, and believing in yourself!  Once you have reached your goal of a thousand dollars, you can always consider reaching for a higher goal, so you have more of a cushion in the future. It can be hard work but once you come across another financial roadblock you will be so grateful you have that emergency fund.

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