How to Build an Emergency Fund

Finding the money that you need to take care of unexpected situations can be difficult; many people are unprepared for the unexpected, and sudden changes in their lives can create debts that they can't easily recover from. In order to be prepared for unexpected situations that may arise, financial experts recommend that individuals create an emergency fund that contains at least the amount that the individual requires to get by for a period of two months. Of course, most people have difficulty maintaining that much of a buildup... if they attain it at all. There are a variety of methods that can be used to help you build an emergency fund, however; several of the most common are listed below so as to help you in creating your own fund to better prepare you for the unexpected. Certificates of Deposit A common way to try to build up an emergency fund is the use of shorter-term certificates of deposit. Individuals can put the amount that they have built up through other means into six month or one year certificates, using the penalties for early withdrawal as an incentive to not cash them out until after their maturity. Once the certificate has matured and the interest has been collected, the individual can then either transfer the amount into a savings account or they can put it back into another shorter-term certificate. As time goes by, the additional interest will help to build up the emergency fund aided by any additional deposits that the individual makes into the fund. Rounding Up Cheques Another method of building up an emergency fund involves rounding up written cheques to the next highest whole amount, thus leaving a small amount in your chequeing account that isn't accounted for in the cheque ledger. Though each cheque written will only yield a small amount of "hidden" funds, as more cheques are written that amount will continue to grow. At the end of each month, you should inquire as to the actual balance of your chequeing account and transfer the difference between your actual balance and the balance listed in your ledger into your savings account. This method can help to build funds especially well if it is combined with other methods as well. Building a Buffer with Pay Raises When you receive a pay raise, it can be a great opportunity to begin putting aside savings in order to build an emergency fund. Instead of using all of your payroll cheque, calculate the amount of it that is from the pay raise and deposit that amount into your savings for your emergency fund. Since this is an additional amount to what you were used to previously, it shouldn't be as difficult to set it aside instead of using it directly. Once you've built up the balance in your savings account, you can later begin putting your raise amount into your chequeing or dividing it between chequeing and savings. Putting Pocket Change to Work One method of building an emergency savings that is often overlooked is the pocket change that you have left over at the end of the day. By designating a container for collecting your change and spare small bills, you can slowly build up a significant amount in much the same manner that you would if you were rounding up cheques that you write. You can deposit the contents of your change container either once per month or whenever the container gets full. Like all of the methods above, this can work best when combined with other methods. You may freely reprint this article provided the following author's biography (including the live URL link) remains intact: