Your son has just backed the car into the garage – literally!  Your company is downsizing and giving you an unpaid sabbatical.  You painfully remember why Dad told you to hire out roof repair.  Unfortunately, financial emergencies are a fact of life.  And they’re the reason most financial planners recommend establishing an emergency fund to cover unexpected expenses or loss of income.

An emergency fund is enough savings to cover three to six months of living expenses such as rent, food, car, and utilities.  The money should be kept where it can earn decent interest (not a bank savings account or under the mattress) and where you can access it quickly without loss or penalty (not a CD or IRA).  Money-market funds, mutual funds made up of safe, income-producing assets, meet both these criteria and are the best choice for most savers.  Visit Bankrate.com for a comparison of money-market funds.  Finally, experts suggest you annually re-evaluate your emergency savings needs and adjust accordingly if your income, debts, and expenses change.

Perhaps you want an emergency fund but just don’t have the resources available at this time.  Don’t despair.  You can create it over time.  Here are some tips you can use to build your emergency fund:

  • Aim for a lower savings goal initially, like a month’s worth of expenses. As your income rises, invest more.
  • If you have credit card debt, consolidate it at the lowest possible interest rate, stop using the card, and make the minimum monthly payment.  Use your available cash to save one month’s living expenses, then pay off the debt.  Once the debt is gone, add to your emergency fund.
  • Use “bonus” money such as gifts and tax refunds to build up your fund.
  • Consider an extra job.  It doesn’t need to be a long-term or regular commitment, but any extra income can go straight to your fund, helping establish it very quickly.
  • If you hate the idea of another “regular” job, put your talents to work.  Do you enjoy cooking?  Working on cars?  Making crafts?  Tutoring?  Sell homemade goods, offer private lessons, or teach a class to earn income.
  • Turn spare change into an investment.  Empty pocket change into a container each night, then at week’s end deposit the funds.  A couple contributing $1 each daily will collect $730 annually.
  • Sell extra items.  Most people have stuff stored throughout their house that will never be used.  Create cash by selling those things at a garage sale.  Or visit your local consignment store to turn “trash” into cash.
  • Have extra space or are you an empty nester?  Why not rent an unused room to a college student or single person?  Or, if you dislike the thought of sharing your home, rent to others who need storage space.
  • Follow these simple steps to start building your fund today.  While you can’t stop the surprise financial challenges we all face, your emergency fund can help prevent a bad circumstance from becoming a disaster.


    Free Money Finance (www.freemoneyfinance.com) is a personal finance blog dedicated to helping you grow your net worth. Written anonymously by FMF, a long-time personal finance freelance writer for major magazines, the blog covers every aspect of personal finances in a simple and easy-to-implement style. Free Money Finance (www.freemoneyfinance.com) has received positive reviews from Business Week, The Wall Street Journal, Barron’s, and For Me magazine. Additional money saving tips can be found at http://www.freemoneyfinance.com/saving_money/index.html and money making ideas spotted at http://www.freemoneyfinance.com/making_money/index.html .