Person putting coins into a piggy bank

How to Build an Emergency Fund

Tips for Saving Money for Emergencies

Do you have an emergency fund built up and stashed away, ready to access if you need it? If not, it’s highly recommended that you start building one. An emergency fund is money set aside for large, unexpected purchases or expenses. These are typically held in savings accounts due to how easy and fast it is to withdraw cash. Emergency funds are often used for situations such as a job loss, major car repair, medical expenses, natural disasters, and home repairs or necessary appliance replacements. If you don’t yet have this extra cash off to the side, learn how to build an emergency fund at the Broadway Credit blog!

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Ways to Start Building My Emergency Fund

Getting started is a key step to securing your financial safety net. So, how do you do it? Here are a few ways you can start building your emergency fund:

  • Calculate the amount you wish to save and set a monthly savings goal – how much should I put aside each month to hit this goal?
  • Send part of your paycheck to your savings – if you get paid through direct deposit, see if your employer can send a certain % or amount to your savings directly.
  • Decrease your spending and save the difference – it’s a good idea to review your expenses monthly to see if there are any purchases you are okay with eliminating or spending less on going forward.
  • Allocate part or all of your tax refund for your emergency fund – if you expect to get money back during tax season, you can complete your goal much sooner by putting aside that cash
  • Do not pull from your emergency fund for anything but emergencies – basically, avoid the temptation to use this cash for non-essentials, such as entertainment and vacations.

[ READ MORE: Tips for Saving Money Every Month ]

Why Should I Have an Emergency Fund?

As mentioned before, emergency funds are meant to help you with unexpected and costly bills. This is to help you stay afloat on your finances without having to turn to loans or credit cards. Since relying on personal loans or credit cards can yield high interest, those that choose this route often pay more than those that have an emergency fund ready to cover the costs.

How Big Should My Emergency Fund Be?

It’s difficult to say exactly how much you should have set aside as everyone’s financial situations are different. Ultimately, experts recommend having at least 6 months in expenses set aside in an emergency fund. For example, if you spend on average $2,000 a month, you should have at least $12,000 ready for emergencies. Of course, if you’re just starting out, you won’t have that kind of money to put into a savings account. In cases like these, it’s a good idea to set small goals and work your way up, such as $500, then $1,000, then $2,000, and so on. The 50/30/20 budget rule is a great tool to use when determining the amount of money you should be saving each month.

[ READ MORE: How to Effectively Use Your Tax Refund ]