Emergency funds naturally come up in the discussions surrounding costly repairs. These funds help keep your personal finances in good shape in the event that your car breaks down. Survey respondents agree that having such a fund is important, as we found that over 57% of participants have some sort of an emergency fund set aside.
Gender has yet again come into play in these results, with less than 50% of women having an emergency fund. At the same time, over 50% of men with an emergency fund report having $2,000 or more set aside.
How To Build an Emergency Fund
Whether or not they’ve built one up for themselves yet, almost 80% of survey participants feel that they could benefit from tips on how to build an emergency fund. Doug Carey, a chartered financial analyst (CFA) and president of the financial planning software company WealthTrace, shared tips to help you build up an emergency fund to prepare for an unexpected car repair.
1. Set a Savings Goal
Setting a goal is the first step in building a successful emergency fund. Carey stated that you should “aim for three to six months’ worth of living expenses” to have in your emergency fund. However, he noted that you need to be realistic and “set a target based on your financial situation and personal needs.”
2. Create a Budget
Creating a budget “allows you to allocate a specific amount toward your emergency fund each month,” Carey said. He also encouraged people to track their expenses and make adjustments along the way to stay on track and hit their financial goals.
3. Automated Savings
If you’re worried about remembering to put aside money for savings each month, Carey recommends “setting up an automatic transfer from your checking account to a separate savings account dedicated to your emergency fund.” This relieves you of having to remember to make manual transfers and can help you save money without thinking about it.
4. Reduce Unnecessary Expenses
This may be the toughest step, but Carey encouraged you to “look for ways to reduce discretionary spending and unnecessary expenses.” This includes how often you dine out, entertainment costs, subscription fees and other nonessential bills and expenses. “Redirects [this] money saved toward your emergency fund,” Carey stated.
5. Be Consistent
Building an emergency fund won’t happen overnight, so Carey urged people to “be patient and stay committed to your savings plan. Even if you can only contribute small amounts [of money] initially, consistency is key.” If you’re consistent about efforts to build the emergency fund, you’ll be encouraged to continue as your savings grow.