It is recommended that all working adults have a savings account holding between 3 and 6 months’ worth of funds for bills and unforeseen costs associated with emergencies, but the reality is that many adults do not have this much money in savings. Whether you unexpectedly lose your job or need to pay for an unanticipated stem cell for knees procedure at a clinic like ThriveMD, it is important to have money set aside to avoid further stress and complications. If you do not have an adequate emergency fund in place, it can be difficult to determine how to begin saving this amount of money. Here are 5 expert tips for building an emergency fund from scratch.
1. Be Realistic
Although you should aim to have several months’ worth of money in savings, it is not realistic for most working adults to put this much money in savings in a short period of time. While it might be tempting to put large amounts of money in savings each time you get paid, the truth is that this only increases the chances of you needing to dip into your savings account throughout the month and is not an effective way to build your savings over time. Think about the money you make each month and the expenses you have to cover, then select a realistic, achievable amount of money to put in savings each paycheck and don’t let yourself touch it. Putting a smaller amount of money in savings – at least initially – will increase the likelihood you are able to build your emergency fund, even if it takes a bit longer than you’d like.
2. Automate Your Savings
If your employer can split your direct deposit payments across multiple bank accounts, set up your payments so that an allotted amount of money goes directly into your savings account each month. This is the easiest way to ensure that you are consistently adding money to your emergency fund without thinking about it or having the opportunity to decide against doing so.
3. Set a Firm Goal
Instead of trying to save as much money as possible for emergencies, think of a specific dollar amount that you would like to reach. Once you have reached that goal, don’t oversave! Once your emergency fund has reached an adequate amount, you should begin putting the money you’d like to save in a separate savings account or retirement fund.