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10 points for thinking about saving for emergencies.

10 points for thinking about saving for emergencies.

Set a savings goal

Determine how much you need to save for emergencies and set a specific savings goal.

Start small

If you’re not used to saving regularly, start small by setting aside a small amount each week or month and gradually increase your savings over time.

Cut back on unnecessary expenses

Look for areas where you can cut back on unnecessary expenses, such as eating out or subscription services, and redirect that money towards your emergency savings.

Use windfalls to boost your savings

If you receive unexpected money, such as a tax refund or bonus, consider using it to boost your emergency savings.

Keep your emergency savings separate from other savings

To avoid accidentally spending your emergency savings on non-emergency expenses, consider

Step 1

Determine your monthly living expenses: To determine your monthly living expenses, add up all of your regular bills, such as rent or mortgage payments, utilities, groceries, transportation, and any other regular expenses. Make sure to also factor in any debt payments you may have.

step 2

Multiply your monthly expenses by three to six: Once you have your monthly living expenses total, multiply it by three to six to get an estimate of how much you need to save for emergencies. If you have a higher risk of losing your job or work in an unstable industry, you may want to save towards the higher end of the range.

step 3

Consider your job security: If you work in a stable industry with little risk of job loss, you may feel comfortable saving towards the lower end of the range. However, if your job is less stable or you work in a volatile industry, you may want to save towards the higher end of the range.

step 4

Identify potential emergency expenses: In addition to your monthly living expenses, consider other potential emergency expenses you may face. These could include medical bills, car repairs, home repairs, or unexpected travel expenses.

step 5

Add up potential emergency expenses: Once you have identified potential emergency expenses, estimate the total cost of each one to get an idea of how much extra you may need to save beyond your living expenses.

step 6

Consider your risk tolerance: Your risk tolerance refers to how much financial risk you are willing to take on. If you have a lower risk tolerance or are more risk-averse, you may want to save towards the higher end of the three to six months’ worth of living expenses range.

step 7

Determine the best savings vehicle: Consider using a high-yield savings account or money market account to store your emergency savings. These types of accounts offer higher interest rates and easier access to your funds than a traditional savings account. Avoid investing your emergency savings in the stock market or other high-risk investments, as this can leave you vulnerable to market fluctuations.

step 8

Avoid using credit cards for emergencies: While credit cards can provide a temporary solution for unexpected expenses, they can also lead to high-interest debt and financial stress. Try to avoid relying on credit cards for emergencies whenever possible.

step 9

Review and update your emergency savings regularly: It’s important to regularly review and update your emergency savings to ensure you have enough funds to cover any potential emergencies. Consider setting up automatic transfers from your checking account to your emergency savings account each month to help you stay on track.

step 10

Don’t touch your emergency savings unless it’s necessary: Try to avoid using your emergency savings unless it’s absolutely necessary. Remember, this money is meant to provide a safety net in case of unexpected expenses or job loss.