Kara Schulte
AFC® Candidate
FINRA Military Spouse Fellow

If there is one thing that is guaranteed, it is that emergencies will happen! Mr. Murphy enjoys knocking on my door frequently and at the worst times, too. First the car needed new tires, then the transmission went out on the truck, and then before I could blink the dog ate my scarf causing a weekend trip to the vet. I did not see any of that coming! The thing is, we know unexpected things will happen. If you have a car, you know it will need maintenance. If you have a child, you know accidents will happen. If you own a home, you know repairs will need to be made. Yet we never seem ready for emergencies when they occur. Being unprepared only adds to the stress and urgency of what is taking place. However, if you are prepared for an emergency, you do not have to worry about where the money is going to come from to pay the bills. You can focus instead on taking care of the situation.

So how do you start an emergency fund?

Determine how much. Ideally, you should have both a short and long term emergency fund. Short term emergency funds can range from $500-$1,000 or more depending on your needs. This fund should be your first savings priority because it helps ward off those little emergencies that always seem to pop up. In a long term fund, it is ideal to have saved at least 3-6 months of household expenses. Hopefully this fund will not have to be used, but in case of a job loss, it will help cover the monthly bills while a new job search gets underway.

Save automatically. Often times the bills get paid, new shoes are bought, we buy a coffee every morning on the way to work, and we catch the latest flick playing at the theater. Come the end of the month, there is no money left for savings. Instead of waiting until the end of the month to save what is left over, save first! Set up an automatic deposit from your checking to a savings account. Even better, set up a direct deposit from your pay to go into your savings account. The money will then be in the savings each month and you don’t have to worry about remembering to save. Speaking of the morning coffee…

Skip the coffee! Not really of course. I need my couple of cups in the morning so those I am around can tolerate me. Instead, try brewing coffee at home. If it makes you feel better, go to the store and buy one of those travel mugs that looks like a fancy coffee house cup. Put the money you would use towards your daily coffee into your emergency savings account. Instead of eating lunch out several times a week, pack your lunch and put the saved money in your emergency fund. Even dine out for dinner one night less per month and you will see the savings build up!

Hands off! It can be very tempting to spend money “just this once” when you see it just sitting there in an account. Your emergency fund is for emergencies, not to be used to replace the pair of jeans you ripped a hole in accidentally. Then when Mr. Murphy comes knocking on your door, you’ll be able to tell him that he needs to find another house to visit because you have the situation under control.

For more information:
The Emergency Fund (Saveandinvest.org)
Save for Emergencies (Military Saves)
Creating An Emergency Fund (FINRA Investor Alert)
Many Americans Have No Emergency Savings (Bankrate.com)