How To Make An Emergency Fund

Post By: Admin / USA Frugal Club

It has always been considered a good idea to have an emergency savings fund ready, but after the pandemic ravaged America and the world last year, an emergency fund does not seem like something that is just optional anymore. You may be wanting to create an emergency fund that could last you anywhere from 3 months to a year. However, you are unsure of how to distribute your money into it in a way that works with the rest of your expenses. 

To create an emergency fund, you will need to calculate the cost of your essential spending every month. This includes rent, mortgage, power, food, gas and other bills that must be paid. You should take this number and multiply it by however many months you feel you would need in an emergency situation.  You then need to factor in your income, and create a plan that would help build this fund over time in a manner that you would be able to still live your normal life. 

This is where things get difficult, as if you already have a budgeting plan, it may seem impossible to set aside another collection of money every paycheck to put towards an emergency fund. However, there are some options that you have. 

If you are already budgeting, you likely are investing money into something such as your 401K or the stock market. While I don’t recommend pulling your investments, you can exchange the investment category of your budget to your emergency fund category. Investing is important, but it is likely a good idea to prioritize an emergency fund over investments as you could need it in the more immediate future. You should not halt your investing entirely, but definitely include your emergency fund into your investing portion of your income. Another thing you can do is to pick up a side hustle or sell items online, which you can use towards having more income at your disposal. 

It may take anywhere from a few months to several years to build the fund that you want, but it is nothing that has to alter your quality of life drastically while you build it. The key is to have a plan and to stay disciplined.