How to Build an Emergency Fund

When life happens, having an emergency fund can be the difference between staying afloat or sinking in debt. Here are a few tips to help you establish and grow your rainy-day fund:

Determine how much you should save

Your emergency fund savings goal should be based on your expenses. Tally up your essential monthly expenses including rent or mortgage, utilities, groceries, insurance and minimum payments on debts like credit cards or auto loans. If you have a consistent income, three months’ worth of monthly expenses can be your target. If you have children or other dependents, your income varies, or you are self-employed, six months’ worth of expenses is a more appropriate savings goal.

Define an emergency

Write down personal or family rules for when you will withdraw money from your emergency fund. Setting some guidelines up front will help you avoid using it for things like vacations or impulsive purchases. True emergencies may include an unexpected job loss, large medical bills, urgent home or vehicle repairs, or sudden replacement of things like large appliances.

Open a dedicated account

Set your emergency fund aside in an account you only access when the need arises. It should be separate from your checking account, and from any liquid savings account you may use. To build up this account, you may set up automatic transfers from your checking or savings. Or you can even ask your employer to send a percentage of your direct deposit directly into this designated account.

Grow your emergency fund with windfalls

When an unexpected payout comes your way, such as a work bonus, monetary gift or tax return, transfer a portion of it to your emergency fund to build up your savings. Or take a look at your checking account at the end of every month and move any extra cash to your emergency fund.

Setting some money aside for unexpected emergencies will go a long way in providing peace of mind and financial freedom if hardship arises. Ask your City banker to help you set up and plan to fund a dedicated emergency account.