Living on your own – and being an adult with adult responsibilities – can be tough at times. Paying bills, rent, and having a social life can take a toll on your savings and at times it feels like you are literally living paycheck to paycheck and this is why it is important to start an emergency fund early. Saving for the future or unexpected expenses might not be at the top of your priority list when you’re just trying to make ends meet, but its important to budget out for an emergency fund should something unexpected like a job layoff or accident occurs. You don’t want to be unprepared when life throws you a curveball.
Here are some tips on how to start your emergency fund . You don’t have to put a crazy amount of money in each paycheck, but saving a dollar here and there can really help you accrue funds in the long run.
Step By Step Process To Start An Emergency Fund
1. Set a Savings Goal
How much do you want to save for your emergency account? $5,000? $10,000? $50,000? Determine how much you feel you need to save for life’s emergencies (do you want to save enough for three months worth of rent?) and make a plan from there to start an emergency fund
2. Do the Math
Write out a list of your monthly expenses. How much do you spend on rent? Phone bills? Credit card statements? How much do you have left over once all your bills are paid? Figure out an amount that you can lay away each month that won’t jeopardize your other financial responsibilities and allocate that amount towards your emergency fund
3. Open a Savings Account
Opening a savings account allows you to keep your day-to-day funds and your emergency money separate. If you have everything in one account, it’s easier to justify spending it. By making a separate account and labeling it ‘Emergency Fund’ you are making a distinction that will help you keep on track with your savings goals.
4. Make Direct Deposits
You can set up a plan through your bank where a certain amount of money is directly transferred to your emergency fund every paycheck, month, or whenever you want it to happen. Set an amount, and your bank will instantly put that amount into your emergency fund. You don’t even have to think twice about it. Before you know it, you’ll have a nice little egg nest saved up.
5. Use Emergency Money ONLY for Emergencies
We’ve all been there. You see a fancy pair of shoes at the mall or your best friend wants you to go on a trip with you. It can be tempting to dip into your emergency fund when fun temptations arise, but this fund is an EMERGENCY fund, not a FUN fund. While it might seem like you have a pile of cash just sitting there, remind yourself that its not money that’s up for grabs. You can even tell yourself its money already spent in order to get out of the mindset that it’s yours for the taking. The money in your regular account is there for fun activities, not the funds in your emergency account. Use restraint on frivolous purchases.
6. Adjust Your Goal Accordingly
As you start to get a handle of your finances or make more money, adjust your emergency fund goals accordingly. Where you might have only been able to commit to adding $50 to the fund every paycheck, you can now adjust it to $100 ever paycheck. The more you set aside, the more secure you will feel. Imagine going to bed at night and not having to worry about your financial situation—with this ‘start an emergency fund’ plan, you can.
Angie Picardo is a staff writer for NerdWallet, a personal finance website dedicated to helping consumers find the best credit cards