With higher costs for most basics, it might be hard to imagine how you can save money for an emergency fund.
Indeed, 27 percent of all U.S. adults have no emergency savings at all, according to a Bankrate 2024 report. About 29 percent could not cover three months of expenses with their savings.
Financial experts recommend savings that could take care of six months of expenses to cover things like health emergencies, car repairs, or job loss. While six months of savings may seem like a dream, even a small amount of savings can keep you from going into credit card debt at double-digit interest rates, the kind of debt that is very difficult to escape.
So how do you do it if you are starting from scratch? The answer is start small. Make your goal one month of savings, in itself an achievement.
Figure out how much you need for fixed expenses like housing, transportation, food, daycare, utilities, and communications. Next set up a separate bank account for your emergency fund and make automatic transfers to it just as if you are paying a bill. If you can save enough that you could accumulate one month of expenses in a year, start doing that immediately.
At the same time, work on clearing high interest debt, while still building your emergency fund, according to Anthony Martin, CEO of Choice Mutual writing for Kiplinger. Some advisors think slightly differently. Financial guru Dave Ramsey recommends starting first with a $1,000 emergency fund before aggressively starting to pay off debt.
When you successfully save one-month of expenses, start aiming at three months of expenses. When you achieve this, you will be protected from unexpected expensive bills or even unemployment. Pay attention to cutting your spending on things like eating out so you can save your money.
