Stay Out of Debt: Create an Emergency Fund

According to a survey by, more than one-quarter of Americans (27 percent) have no emergency savings, and only half say they have enough to cover three months’ worth of expenses.

Living paycheck to paycheck is not ideal, but it is a reality for many people. Establishing a saving regimen, no matter how large or small, is essential.

To establish an emergency fund, we suggest the following five steps:

  • Identify your essential monthly expenses. Look at your monthly expenses and categorize them as essential (rent, mortgage, car, food, utilities, credit card minimums, etc.) and non-essential (entertainment, eating out, clothes, cell phone, etc.). Then add up the essentials to determine your monthly income needs.
  • Multiply your essential expenses amount by six. Most think a true emergency fund should have at least six months of essential expenses to avoid difficult financial circumstances such as bankruptcy, loan default and eviction if you have a loss in income.
  • Create a savings plan. Start by identifying how you can realistically amass the amount you need and how long it will take – whether six months, one year, three years, etc. The goal is to generate a savings habit that fits your income and budget.
  • Don’t get frustrated. Slowly accumulating savings can be frustrating. Focus on the positives; each $100 saved is $100 you wouldn’t have had. Even a few hundred can make a huge difference. It could be enough to pay your auto insurance deductible in the event of an accident or cover an unexpected household or personal expense. Once you start, stick with it.
  • Ask for help. Get the advice of someone you trust to help identify ways you can save. Ask for tips from friends and family. Churches and employers may offer coaching. Check for budgeting tips and seminars at the local school, civic or senior center.