Build an Emergency Fund
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The first thing to do when working on your personal finances is to build an emergency fund. An emergency fund is an amount of money you have set aside in case of a real emergency.
Only you can define what’s an emergency in your life, but in general, this is not for regularly scheduled budget money. That’s why you have a budget. It’s unexpected and urgent. And it’s not a really good sale on hiking boots. (But look into your heart: you already knew that.)
A lot of finance experts recommend starting with a $1,000 emergency fund, in cash. (We mean cash as opposed to an investment account, not necessarily literal cash in your sock drawer. A bank account is fine; it just has to be there for you at a moment’s notice.) And it’s the first step even if you have debt to deal with.
Consider this: Only 41% of U.S. adults say they could cover a $1,000 emergency with savings. The rest would have to borrow money from someone, would put it on a credit card, or simply don’t know what they would do. (This is from a Bankrate survey released in 2020.)
You want to be in that 41%, for peace of mind alone. An emergency can happen to any of us, and when it happens to you, you don’t want to be worried about how close to the limit your credit card is, or how you’ll pay for groceries this month, or where you could possibly get the money. You do not deserve that kind of stress. And you don’t want to have to add to your debt and interest payments to get out of a jam.
Build Your Emergency Fund
So let’s get started! Here’s a handy tracker you can use like this:
1. Open a dedicated savings account (ideally linked to your checking account for easy transferring).
2. Print this tracker (PDF) and hang it somewhere you can see it.
3. Pick a time during the week. Tuesday at 7:00, say. Set yourself a calendar appointment that recurs each week for a whole year.
4. When Tuesday at 7:00 arrives, pick a box (any box!) on the tracker. Transfer the amount of money in the box into your savings account. Color in or check off the box.
5. Celebrate yourself! You just took a positive step forward, and you are great.
Don’t skip step #5. You deserve wealth, and you deserve security. There are a ton of other more demanding things you could have spent this week’s contribution on, but you made room for your emergency fund anyway. You deserve some self-praise!
After you save your initial $1,000, you can move on to paying down debt in earnest, building your emergency fund to cover a month’s worth of expenses, then more than one month’s worth of expenses, investing for retirement, and accomplishing all kinds of other exciting money goals. But first things first!