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Building Emergency Savings

Preparing for Financial Emergencies Before They Happen
While one of the hardest things to do, at any age, is save money, establishing good savings habits is a key part of achieving your financial goals. A solid savings strategy should include dollars earmarked for emergency expenses. Accidents and other unexpected events happen. Being prepared for them may lessen the burden on your budget. In addition to setting aside a fund for such financial surprises, your savings plan should include short-term goals, like for vacations, middle-term goals for buying a home or vehicle, and more long-term goals such as retirement.
Define “financial emergency”
Any circumstance in which you can’t live your normal life unless you spend a significant amount of money to fix the situation is deemed a financial emergency. Examples might include: repairing your car so that you can drive to work; a health issue that requires paying a high deductible in order to treat it; or a family member experiencing a loss of income and you needing to compensate for their lost wages. All these are financial “needs” and legitimate emergencies.
Buying the newest smart phone, taking a last-minute vacation or splurging on a new wardrobe are “wants” and, therefore, not emergencies.
The struggle to save money, even just a few hundred dollars, is a prevalent problem across the United States. According to the Federal Reserve, roughly 4 in 10 Americans would struggle covering a $400 emergency expense.1
Ask yourself: Is it unexpected? Is it necessary? Is it urgent?
If your answer to any or all these questions is yes and the cost is more than you have on hand or in accessible accounts, then it would be considered an emergency, and you can tap into your emergency fund.
Start Small and Build It
While the recommended amount to build up is the equivalent of three to six months of your typical living expenses, try setting a goal of just establishing a starter emergency fund of $400. This equals the amount of money that 40% of Americans can’t cover for an emergency expense, so that’s a logical place to begin.
Emergency funds can be used to cover a car repair, house repair, medical emergency or living expenses during a job loss. And if you take from this savings, replenish it as soon as possible. To build up your emergency savings fund to cover three months of lost wages, add these monthly expenses and multiply by three:

Rent/Mortgage

Utilities

Groceries

Transportation*

Dependent Care

Debt**
How You Build Your Emergency Savings
Building an emergency savings fund can take time and patience, especially if you are just starting out. But setting aside even $50 or a $100 a month and forming good financial habits can get you close to your emergency savings goal in a few short years. Here are a few tips that can help you fill that emergency savings bucket quickly.
- Make a budget and stick to it.
- Set a monthly emergency savings goal.
- Apply a portion of any raises or bonuses to your emergency savings fund.
- Consider selling any home or personal items that you don’t use anymore.
- Turn a hobby or a passion into a side hustle to generate extra income.
1. https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-dealing-with-unexpected-expenses.htm, Last updated 5/28/2019.
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