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Being Financially Prepared for Emergencies

 

Setting Up an Emergency Fund

One thing you can count on is unexpected expenses or emergencies.  At any time, you could experience:

  • illness or injury,
  • fees for supplies or school-related field trips,
  • a car that needs a repair,
  • a furnace on the fritz,
  • damage to your home because of a storm, or
  • the unfortunate sickness or death of a loved one.

When you have savings to pay for these unexpected expenses or emergencies, you can cover them.  When people don’t have emergency savings, they often borrow money to cover them.  People commonly use:

  • Loans from family members or friends
  • Credit cards
  • Payday or signature loans
  • Car title and pawn loans

These debts can take many months or longer to repay, and with car title and pawn loans, people risk losing the car or asset used to secure loan if they do not follow the terms of the loan.

How much should be in your emergency fund?  Generally, 3- to 6-months of living expenses is recommended.  But, this may seem like a goal that is too big.  If you don’t have an emergency savings fund, consider setting a goal to save $500.  That amounts to saving $10 per week for a year, or $20 per week for 6 months. This amount can cover a lot of common emergencies or unexpected expenses:  a speeding ticket, an urgent care clinic visit, many car repairs, unexpected school-or extracurricular-related expenses, an appliance repair, and so on.

Once you save $500, try saving $1,000.

In order to have the funds when you need them, you need to put them somewhere safe, secure and separate from where you keep your money to pay your day-to-day living expenses.  This ensures you have it when you need it.

But when you are working hard and supporting your household, where does the money come from to pay for an emergency or start an emergency fund?  Try one of these strategies:

  • Get a temporary or part-time job          
  • Sell unused or unwanted items.
  • Re-examine your budget and identify any "spending leaks" that you can plug.

For more information on starting savings for emergencies, visit America Saves.

Tools to Help

Setting up and emergency fund

Learn More

Where to put your emergency savings

Learn More

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What You Can Do Right Now

Information is great. But taking small steps now can lead to big changes.
  • Today
  • Decide to set up an emergency fund. Set a goal for your emergency fund. Remember, $500 can make a big difference.
  • Next Week
  • Find a safe and secure option for putting the money saved in your emergency fund
  • During the Next Few Months
  • Keep saving
  • Once you reach $500 in your emergency fund, consider adding another $500 to it. The more you can put into your emergency fund, the less you will have to borrow and pay back.
  • Remember that when you use your emergency fund to cover an emergency, you will need to start saving again to replace it.