How to Build an Emergency Cash Fund

An emergency cash fund can be a lifesaver when the unexpected happens, such as a major car or home repair, medical expenses or even a job loss. Here's how to stockpile cash to cover living expenses.

Instructions

1. Set aside a specific amount daily, weekly or monthly. Find an empty jar, a piggy bank or an envelope to start putting away the extra change. Put any amount that you can spare into your personal stash.

2. Open a savings or money market account online or at a traditional bank, and devote this account entirely to your emergency fund. Deposit money saved into this account regularly.

3. Have a fixed amount automatically deducted from your paycheck or checking account and automatically transferred into your emergency savings account. Think of it as paying a bill, except you are paying yourself. Follow your bank's instructions, or contact the customer service representative to learn how to set up automatic payments.

4. Pay off a bill such as a credit card, and then put that extra cash into your emergency savings account. You can also transfer any tax refunds or job bonuses that you receive into that account.

5. Get small amounts of cash back when you use a debit card at the grocery store. Deposit these amounts into your savings jar, piggy bank or envelope. Clear your wallet of all but $5 to $20 in cash each day, and put the spare singles in your stash.

6. Take advantage of supermarket discount cards or coupons. Reward yourself by adding that savings into your jar, piggy bank or envelope.

7. Skip extras such as cable TV, takeout or any weekend spending sprees. Packing your lunch for work and eating dinner at home can make a difference. Stashing the extra cash instead of spending it on an unnecessary purchase, helps you to keep money in the bank.

Tips & Warnings

• You can maximize your savings if you put money into an interest-bearing account. However, since the whole point of building an emergency cash fund being able to access your money in case of unexpected need, don't choose accounts that pay higher interest rates but limit access or charge penalties for early withdrawals.

• Use your budget to calculate the target size of your emergency cash fund. You should aim to have sufficient funds to pay all regular living expensesmortgage or rent, car, insurance, utilities, groceries for 3 to 6 months. Once you've accumulated your target, set those funds aside and use your new saving habits to start a new savings account with higher interest rates. You also can invest in a retirement account.

• Banks and ATMs may not be accessible in an emergency such as a natural disaster or a terrorist attack, so always keep some of your emergency fund on hand in cash.