An emergency fund takes time and discipline to build, but you don’t need to be a rocket scientist to learn how to track your expenses and save money. Some simple calculations will help you determine what you are able to save each month, and as a result, how long it will take to build an emergency fund.
Here are some basic steps to get there:
- Start by saving $1,000. That is enough to distance you a bit from paycheck to paycheck living. Sell whatever you can, work some side gigs, do anything possible to reach this step as soon as you are able.
- Then, continue on until you have one full month’s expenses saved. This doesn’t mean one month of income, but rather mandatory expenses that will occur in a given month.
- Next, add a second, and then a third month, at which point you will have attained what most experts consider a minimally acceptable emergency fund. Six months is considered ideal if you are able.
Statistically speaking, only 1 in 4 Americans have an adequate emergency fund. Furthermore, a full 1 in 4 Americans have no emergency fund at all. So it is clear that more Americans need to focus on completing this financial task. But how does one practically accomplish this?
- Find out how much you need.
- Use direct deposit.
- Lower your monthly budget.
- Pick up side-hustles.
Also, before beginning, consider this emergency fund checklist:
- Have 3-6 months living expenses.
- Keep it in a non-easily-accessible account.
- Let it earn interest at low risk.
- Reserved for emergencies only.