Saving for Family and Other Emergencies

We all know how it feels when we're faced with unexpected expenses, such as a car that won’t start or a broken refrigerator. There's never a good time for these events, but they always seem to hit at the worst times.

Since we can't predict the future, it makes sense to put aside money for rainy days. An emergency fund allows you to pay for surprise expenses without going into more debt. Plus, knowing you can face these bumps in the road gives you peace of mind—and that is worth a lot.

Many people try to set aside three to six months' income in an emergency fund. While that may seem like a lot of money, the following tips can help you set up an emergency fund of your own.

• Pay yourself first. Think of saving as a bill you owe yourself. When you receive a paycheck, immediately take a certain amount of money—say, $10, $15, or $20—and deposit it in an account that's separate from your other savings.
• Save any extra money you receive. If you get a tax refund this year, don't be tempted to buy things with it. Instead, sock it into saving. Do the same thing with any bonuses or pay raises.
• Spend less. Look at your spending plan for places to cut expenses. Deposit the savings into your emergency fund.

To successfully build an emergency account:

• Keep it separate from your main savings account. If the funds are mixed, it can be too easy to dip into the emergency savings.
• Use the money only for true emergencies, such as unexpected medical bills.
• Deposit the emergency fund money into an easily accessible savings account or money market account. It’s important that you’re able to access your money quickly, easily, and without paying a penalty.

The Emergency Fund Worksheet can help you estimate how much you should eventually set aside.