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How to Start an Emergency Fund

Experts say everyone should have at least three months of living expenses set aside in case there is an emergency of some sort, or you lose your source of income. Many people don't have access to that much cash all at once to move into an account and label it "emergency savings' but there are other ways to set up an emergency account even if you don't have three months of income to set aside.

1) Open a savings account that earns interest with as much of an initial deposit as you can comfortably afford. Make sure it is one that will allow you to make automatic deposits from another bank account (like your primary checking or savings); or that can accept direct deposits from your employer.

2) Decide how much you can contribute weekly, biweekly or monthly. It's best to set up your savings schedule on the same schedule as your pay periods.

3) Set it up so the money you plan to save in your emergency fund is automatically saved each pay period. If it happens automatically, you will be less likely to "forget" to save it, and will notice it less than if you physically had to move the money into the savings account yourself.

Once you start making your regular contributions to your account, think about how much money you want to establish in your emergency fund. When you've reached that amount, you can contribute the money you would have put into the emergency fund into another savings account for retirement, your children's college, a vacation, or some other purpose.


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