Managing Your Money, Part 4: Preparing for the unexpected

In life, the unexpected happens. Facing an unplanned financial challenge or emergency is more manageable when you’re prepared. Here's how to get started.

 

Save now for later

An ideal emergency fund should cover three to six months of living expenses. This may seem intimidating, but if you set small amounts aside consistently over time it can be done. To build your fund, set a goal, add it to your budget, and start saving.

Make sure you place the money in an account that's easy to access without fees or penalties for withdrawals. But resist the urge to spend the funds on things that aren't emergencies.

This article has ideas on building your emergency fund.

 

Prioritize paying yourself first

The most important person you pay each month is yourself. It’s helpful to get into the habit of prioritizing your savings, even if you are only able to devote a small amount of your income at first.

Build your emergency fund by setting aside a small amount of each paycheck. Automatic transfers are a great way to “set it and forget it,” so money goes into your fund regularly. Also, if you come into money — such as a tax refund or gift — commit to putting at least part of it into your emergency fund to reach your savings goal faster.

Unsure how to pay yourself first? Learn how.

 

If you need even more

Even with the best planning, sometimes your emergency fund might not cover what you need. If you have to tap other accounts, be careful of accounts and investments like certificates of deposits (CDs) and retirement accounts that may charge fees or penalties for early withdrawal. If you do need more money than you have saved, find out how much credit you have available or consider borrowing to cover your emergency expense. For additional insight on responding to unexpected expenses, read more.