How to Save for an Emergency Fund

Have you started building up an emergency fund?

Photo by Tax Credits, used with Creative Commons License.

This guest post comes from our friends at

First things first: You must have an emergency fund. Sooner or later, life is going to throw you a curveball, and you’ve got to be prepared. A sudden illness, accident, or job loss can quickly overwhelm your finances. It doesn’t matter how small your emergency fund is in the beginning. Ideally, you want it to cover 3-6 months of household expenses, but you have to start saving sometime, and the sooner, the better.

How much will you need? Obviously there is wide disparity in the realm of household expenses, but the average annual expenditure per American household in 2010 was approximately $48,000 (65 percent of that amount is spent on housing, transportation and food). Once you know your total monthly expenses, multiply that number by three and make that amount your initial target. Once you’ve saved three months’ worth, up the goal till you reach six months of savings.

Like any other budget plan, you’re going to need discipline and persistence to carry it through. But there are many ways to make your savings grow relatively painlessly. Here are a few tips:

  • Set up an automatic deduction from your paycheck before it even hits your checking account. Your bank will put aside the money in a dedicated savings account.
  • Treat your emergency fund like a bill, with a set amount that you have to pay every month.
  • Cut out one frivolous expense each month — a magazine subscription, gourmet coffee — and deposit the equivalent amount in your fund.
  • Once a debt is paid off, for example on a car or appliance loan, keep paying it, but to yourself.
  • Make your fund one that is easy to make deposits into, but harder to withdrawal from. A money market account and a certificate of deposit (CD) are good choices.
  • Put your tax refund, or any unexpected windfall, into your emergency fund.
  • Refinance your mortgage to a lower interest rate. Save the difference of your monthly payments. Get rid of private mortgage insurance once your home equity exceeds 20 percent of the original value of the home.
  • Spend less on restaurant meals and outside entertainment. Eat at home, and search out free recreational activities.
  • Investigate lowering your home and car insurance premiums by raising deductibles.
  • Cancel extra fees and unused services on your cell phone, land line and cable bill. You never watch all those channels, anyway.
  • Leave your credit cards at home, and pay with cash. You will wind up spending less.
  • Shop smarter – look for sales and discounts. Use coupons. Put the savings into your emergency fund.
  • Stop smoking. Pack-a-day smokers ruin their health, while burning up $1,660 per year.
  • Don’t buy on impulse. Always wait a few days before making a major purchase. You may decide you don’t really need what you thought you did.
  • Wash your own car.
  • Bring your lunch to work. Brown baggers save thousands of dollars a year.

Once you have saved enough in your emergency fund, don’t treat it like a piggy bank. It’s there only for an emergency. That’s why it’s called an emergency fund!

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About Frugal Freida

Frugal Freida is the archetypical New Frugality visitor - savvy, smart, social and aiming to help share her tips with the world.