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Rebuilding Your Emergency Fund

Sarah W. Caron



You were smart. You had several months’ worth of money stocked away in the emergency fund – and you knew if something happened, you were covered. Just like the experts suggested. But then something did happen. And next thing you know, the emergency fund disappeared, the credit card balances rose and any extra money you had was spoken for.

Sound familiar? If you are like many people in America, you have faced hardship over the last decade. If you are ready to start rebuilding your personal safety net, these tips will help you get there.

So where do you start?

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How Much Do You Need to Save?

Ginita Wall, CPA, CFP, of PlanForWealth.com, says that financially, the old advice of having three months’ worth of savings just doesn’t apply anymore. These days, job loss can mean months and months out of work. And other catastrophes – from natural disasters to man-made ones – can also leave you unexpectedly unable to earn money.

Figuring out how much you need to save really depends on your individual circumstance.

“It depends on how volatile your situation is. If you have a job that you are really sure you won’t lose. And if most of your family is nearby then maybe you don’t need much for an emergency fund,” says Wall. “But if you are in a job where you have frequent layoffs or could even experience job loss and be out of work for a period of time, and that’s how much of an emergency fund you need.”

Cut Back

Rebuilding emergency funds probably won’t be easy – and if it is, you probably aren’t saving enough. Once you decide how much you need in your emergency account, then start putting funds toward it and don’t touch them.

But where do you get that money? By not spending it elsewhere, Wall says.

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“The best place to do it is to tighten your belt for a few months until you have it built back up. Every time you go to make a discretionary purchase is to ask yourself do I really need this,” advices Wall. “The best way to think about it is anything you could possibly give up buying in an emergency.”

Smart Changes

Wall says that it’s not necessary to totally change your life to rebuild the emergency fund. In fact, little things can add up. For instance, for some that expensive latte is a social thing. So that might not be the thing to shed from the budget. Instead, think of how you can spend less and put your savings away.

“Don’t eat out and take the money and put it in your savings,” says Wall. Or “maybe instead of eating a restaurant, eat at a casual place instead.”

It’s not just food though – you could cancel your cable for a few months and bank that money. Or take a shopping break. “Shop in your closet for a few months and only replace what’s absolutely necessary,” says Wall.

Make it Automatic

We all know how easy it is to casually blow off transferring money or to put it off and then skip it all together. Don’t let that happen to you. Wall suggests setting up automatic transfers – or using mobile apps to transfer whatever you say by not buying something right back into your savings account.

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That savings will add up, she says. “Four dollars doesn’t seem like much but if you do that three or four times a week, that can build up over $1000 over the course of the year,” says Wall.

More than Emergency Funds

Still, emergency funds aren’t the only thing you should consider when protecting yourself against catastrophe financial events. Also try to have a secondary safety net of funding to ensure that you are covered, says Wall. She suggests also having room on credit cards or in home equity so you have a backup to your backup.

Sarah W. Caron is a writer, editor and recipe developer. Find her online at SarahCaron.com.

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