How to Build a 3-6 Month Emergency Fund

An emergency fund is a financial safety net that can help you cover unexpected expenses without going into debt.

It’s an essential component of a solid financial plan, and experts recommend having enough money saved to cover three to six months of living expenses.

In this article, we’ll go through the steps to build a 3-6 month emergency fund, including how to determine;

• How much do you need
• Set a savings goal
• Cut expenses
• Increase your income
• Start saving
• Track your progress.

#1 Determine How Much You Need

The first step in building an emergency fund is to figure out how much you need.

Start by calculating your monthly expenses, including rent/mortgage, utilities, food, transportation, insurance, and any other recurring expenses you have.

Don’t forget to include expenses that may not occur every month, such as car repairs, medical bills, or home maintenance.

We learned how to Create a Budget That Works for You in our last post, so be sure to check it out here.

Once you have a monthly expense total, multiply it by the number of months you want to save for.

As a rule of thumb, most experts recommend saving three to six months’ worth of expenses, but you may need more or less depending on your situation.

For example, if you have a high-risk job or unstable income, you may want to save more.

Personal Anecdote:

When I began my journey towards saving for an emergency fund at the young age of 19, I had no idea how much I should allocate towards it.

Initially, I assumed that a meager sum of $1,000 would suffice.

However, as I delved deeper and conducted extensive research, I quickly realized that it was nowhere near enough.

As I progressed through life, my savings rate and goals evolved with my changing circumstances.

Getting married, growing a family, and adding new expenses to my budget reminded me to prioritize my emergency fund.

In these uncertain times, I found that maintaining a safety net of at least 6 months’ worth of expenses is essential.

I’ve found Wealthfront to be a reliable platform to store my emergency fund and even recommend it to others, as new users can benefit from a high APY through my referral link.

#2 Set a Savings Goal

Once you know how much you need to save, set a savings goal.

Having a specific goal in mind can help you stay motivated and focused on your saving efforts.

To calculate your savings goal, simply multiply your monthly expenses by the number of months you want to save for.

For example, if your monthly expenses are $2,000, and you want to save for six months, your savings goal would be $12,000.

It’s essential to set a realistic goal that you can achieve.

If you set a goal that’s too high, you may get discouraged and give up on your saving efforts.

On the other hand, if you set a goal that’s too low, you may not have enough saved to cover unexpected expenses.

Personal Anecdote:

When I set my savings goal, I decided to break it down into smaller milestones.

I set a goal to save $1,000 in the first month, $3,000 in the third month, and $6,000 in the sixth month.

Having smaller goals made the process more manageable and helped me stay motivated.

#3 Find Ways to Cut Expenses

Cutting expenses is an excellent way to free up money to put toward your emergency fund.

Start by reviewing your monthly expenses and identifying areas where you can cut back.

For example, you could reduce your grocery bill by meal planning, eating out less, or buying generic brands.

You could also lower your utility bills by turning off lights when you’re not using them, taking shorter showers, or adjusting your thermostat.

Personal Anecdote:

When I was trying to cut expenses, I realized that I was spending a lot of money on eating out.

I started bringing my lunch to work and cooking more meals at home and meal prepping.

I ordered a set of 5 locking lids and began to eat salads, chicken, and veggies mixed with quinoa

Not only did this save me money, but it also helped me eat healthier.

#4 Increase Your Income

If you’re having trouble finding ways to cut expenses, another option is to increase your income.

There are several ways you can do this, such as taking on a side job or freelance work, asking for a raise at your current job, or selling unwanted items.

You could also consider starting a small business or monetizing a hobby.

For example, if you’re good at baking, you could start selling your baked goods to friends and family or at a local farmers market.

Personal Anecdote:

When I was focused on building up my emergency fund, I used all sorts of ways to generate extra cash.

I even wrote an article on ‘8 Ways To Make Money Online Without Monetization.’

One of the methods I mentioned in the article was affiliate marketing, and I thought to myself, ‘Why not give it a try?’

As luck would have it, affiliate marketing proved to be a fantastic way to earn extra cash while simultaneously boosting my savings.

In fact, I even ended up writing an article of my own on the topic of making money online without monetization, and I included affiliate marketing as one of the top methods.

It just goes to show that with the right mindset and resources, building up your emergency fund can be both profitable and enjoyable.”

#5 Start Saving

Now that you have a savings goal and a plan to cut expenses or increase your income, it’s time to start saving.

Set up a separate savings account specifically for your emergency fund, and make sure it’s easily accessible in case of an emergency.

Automating your savings can also be helpful.

Set up an automatic transfer from your checking account to your emergency fund each month.

This way, you won’t have to think about saving, and it will happen automatically.

Personal Anecdote:

Building an emergency fund can seem like an overwhelming task, but with the right tools and resources, it’s entirely achievable.

For me, Wealthfront has been an instrumental platform in helping me reach my financial goals.

One of the ways Wealthfront has made it easier for me to save is by allowing me to separate my savings accounts.

This feature makes it simple to keep track of my emergency fund while also saving for other financial goals.

Additionally, Wealthfront offers one of the highest yields in the market, ensuring that my savings are growing at a steady rate.

I even recommend Wealthfront to others, especially new users who can benefit from an increased yield by using my Wealthfront.

With Wealthfront, building up an emergency fund doesn’t have to feel like an impossible feat.

Instead, it can be a seamless and rewarding process that ultimately leads to financial security.

#6 Track Your Progress

Finally, track your progress toward your savings goal.

Review your budget regularly to ensure you’re sticking to your plan and making progress toward your goal.

Celebrate your milestones along the way, and adjust your plan as needed.

Personal Anecdote:

When I reached my savings goal, I felt a huge sense of relief and accomplishment.

However, I didn’t stop there.

I continued to save, and now I have a year’s worth of expenses saved in my emergency fund.

It’s a great feeling knowing that I’m prepared for whatever unexpected expenses may come my way.

Conclusion

Building a 3-6 month emergency fund is an essential component of a solid financial plan.

By following these steps, you can determine how much you need, set a savings goal, cut expenses, increase your income, start saving, and track your progress.

Remember, building an emergency fund takes time and effort, but the peace of mind it provides is well worth it.

If you want to learn more about understanding your income and creating a budget, check out our previous articles on those topics.

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– Investing On The Go