How to Start an Emergency Cash Fund

Member

By Elander Guthrie
User-Submitted Article

Article Rating: (10 Ratings)

Emergency Cash Fund

An emergency cash fund can make all the difference in the world when you are in a financially difficult situation. If your income suddenly vanishes, whether it be due to injury, being laid off, or another reasons, a nest egg can come in terribly handy when those monthly bills keep coming. While many people keep money stashed around the house in case it is needed in a pinch, in a desk drawer or a safe or even in the freezer, building an emergency cash fund of a more significant stature can make the difference between survival and financial ruin.

Difficulty: Moderately Easy

Instructions

Step 1

Determine how much you will need so you have a goal to shoot for when starting your emergency cash fund. A good rule of thumb is to calculate your necessary expenses for one month, and then multiply that number by three. This may seem like a large amount, but it is better to overestimate than underestimate, just in case it becomes needed later on.
Step 2

Open a new bank account. In order to better keep track of your money, you will want to keep it completely separate from your general ledger. You will also want it to be easy to tap into should the need arise, so a checking or savings account would be ideal. The easiest solution is to open another account at your current bank. This allows for easy transfers and tracking.
Step 3

Every time you make a purchase, allocate extra money for your emergency cash fund. This can be anywhere from rounding up to the next dollar to a full dollar or more. Take how much liquidity you need into account. Some banks even have the option of doing this for you automatically.
Step 4

Reduce debt payment and all unnecessary expenses until you reach your goal amount. While sitting on existing debt is seldom a good idea, that debt will compound significantly if something comes up and you don't have an emergency cash fund to make your monthly payments until you are back on your feet. Late fees and increased interest rates can add up very, very quickly.