Money Saving Strategies To Build An Emergency Fund

Money Saving Strategies To Build An Emergency Fund

Written by jrichter AUGUST 6, 2014

Accumulating an emergency fund isn’t as exciting as saving for an extravagant vacation or a down payment for your dream home, but financially-savvy folks understand the value and prioritize for their security. Emergency funds are separate from general savings accounts, retirement funds and health savings accounts. They cover unexpected costs that could otherwise force you into debt.

If a pipe bursts at home, are you ready to pay for the repairs? Can you make your monthly mortgage payment if you lose your job tomorrow? These are prime examples why amassing an emergency fund is necessary.

We asked a few financially-minded bloggers for their advice on saving for emergencies.

At what point in life should people amass emergency funds, and how should they begin?

I started my fund about a year ago. I think if you own something valuable like a house or car, you should definitely have an emergency fund. However, they are good for everyone, even college students, because you never know when you’ll need to buy an emergency plane ticket home for a family issue. Currently I’m putting $20 a month into the emergency fund, but I also have a car repair fund, a travel fund and a fund for my husband’s very expensive board exams for medical school. I deposit money into all of my savings accounts before doing anything else each month. If you wait until the end of the month to put your leftover money into your emergency fund, you’ll never start one! — Cat Alford

How much is enough?

In the beginning a person should have at least $1,000 saved and then, after paying off their non-mortgage debt, should progress to a 3- to 6-month emergency fund. Any less than three months and a person risks not being funded enough when multiple emergencies hit in a close time span (and at some point they will). Any more than six months and they risk having too much money locked into low interest paying assets, instead of funding other investments (like the stock market) that would yield higher returns. — Brian Fourman

What type of “emergencies” justify spending from the fund?

I think essential and unavoidable expenses are reasonable uses for an emergency fund. For those without health savings accounts, a major surgery or other expensive medical bill is worth paying from the emergency fund. Likewise, a car that’s used for everyday transportation that has an unexpected major repair bill would be a justified emergency. If you have time to plan for an expense, such as needing new tires in 6-8 months, I don’t feel this is a good use of your emergency fund. This fund should be seen as help for unexpected cases, not a bail out when you’re not sure how to fit other savings into your budget. — Krista Maroni

How do you prioritize accumulating an emergency fund while saving for retirement and other goals?

I would prioritize an emergency fund right behind saving for retirement: 401(k), IRA, emergency fund, general savings. Now, I am actually shrinking my emergency fund. We had a huge one, but have realized we are losing money over time due to inflation. We are trying to get more of our money invested in long-term securities like stocks. — Derek Chamberlain

What strategy helps beginners start saving for emergencies?

I think the mentality part is very important. Once you understand why you need an emergency fund, then you build it as a priority. Emergency funds act as a cushion to give you some financial protection. When I first built my emergency fund, I gave up vacations and “luxury” items to amass the fund. — Sean Smarty

How can others successfully budget emergency savings?

Begin today to pay yourself first. Get a second account with direct deposit for the emergency fund, away from your checking account. If in debt, save an emergency fund of $1,000 to $2,000, and focus on the debt entirely. The fund helps avoid any further financial setbacks. — Rich Uncle EL

Do you have any guidance for others struggling to accumulate emergency funds?

Life is unpredictable. A new car and new furniture don’t mean much if you can’t pay for food or housing. Put up with the old car or small house for as long as you can until you have an emergency fund you can be comfortable with. Put the money in a high-interest Internet bank account so it earns a bit rather than your standard savings account. — Mr. 1500

What financial goals prevent individuals from saving emergency funds?

On a 10-point scale, accumulating an emergency fund is a 6. I plan to accumulate an emergency fund over time, once I can get my core business profitable. — Donny Gamble

AUTHOR:TALI WEE for Zillow.com


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Dated: August 8th 2014
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