A brief guide to building an emergency fund

An emergency fund is essential to your financial security because it provides a safety net in the event that you become unemployed or need to pay for an unexpected expense. Since April is Financial Literacy Month, here’s a look at how to create an emergency fund that will help you weather financial hardship without increasing your debt.

How much to save
Most financial experts recommend that you set aside enough money to cover your household expenses for three to six months. Take into account necessities like rent or mortgage payments, transportation costs, food, and utilities.

How to save
An emergency fund takes time to build up, so start saving as soon as possible. Create a plan to set aside a portion of your income each month, even if it’s a small amount. Find ways to reduce your expenses and use your next bonus or tax refund to bolster your savings.

Finally, remember that this money should be reserved exclusively for emergencies. Adequate savings will help ensure you don’t have to rely on credit cards or high-interest loans if you get sick, lose your job, or need to make a major home or car repair.

Where to save
A high-interest savings account is a smart place to put aside an emergency fund because it ensures your money is accessible if you need it. Plus, you’ll likely earn a bit of a return on your savings. Other liquid, low-risk investment options include a money market account or a certificate of deposit.

If you need help building an emergency fund or achieving other financial goals, speak with a certified financial planner or a registered investment adviser.