An emergency fund is a separate bank account set aside to cover the costs of life’s unplanned events such as large medical bills, job loss, or major auto or home repair. While many people understand that they need an emergency fund, it can be a challenge to find the breathing room in their budget to start one. A good rule of thumb is to have enough in your fund to cover three to six months’ worth of living expenses, which would allow you to pay for necessities if you were to lose your job, for example.
Here are some tips and tricks to help you work towards your emergency fund goal:
Contribute monthly – Set a goal for an amount of money that you will contribute each month and stick to it. A great way to do this is to set up an automatic transfer from your checking account.
Keep a change jar – If you frequently carry cash, start a change jar at home. Collect your extra change and small bills in the jar and, when it is full, deposit it in your emergency fund account.
Transfer extra cash – If you have paid your necessities and have extra money leftover at the end of a pay period, consider transferring it to your emergency fund rather than spending it on luxuries.
Use bonuses and tax refunds – If you receive a bonus from work or a tax refund, put these towards your emergency fund.
As you build your emergency fund, make sure to use it exclusively for emergencies, which should be only things that affect your health or ability to earn money.
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