The 3-Step Guide to Building an Emergency Fund

Guest Post by Jane Smith

Tax return season is upon us.  For some this is good news, but for many it means it's about time to dip into their savings to write the government a substantial check.  We'd all like to get huge refunds every year, but the reality is that many people pay $1,000 or more a year after their tax returns are filed.

And though it should be a fact of life by now, tax returns always seem to take us by surprise — and then leave us fretting over how to pay the taxes we owe.

Of course, taxes aren't the only expense that would have you digging in the couch cushions (metaphorically or literally) for some extra cash.  Medical bills, automotive maintenance or repairs, home repairs, and other kinds of catastrophic events, however unlikely, are always possible, which is why it is so imperative to have an emergency fund.

You've probably heard of an emergency fund before, and you probably think they're a great idea.  But, if you're like the majority of Americans, you don't have one, and you find yourself stretched dangerously thin whenever something unexpected happens.

There's no way to plan around emergencies, but there is a way to prepare for one, and if you've ever been through one you'll know that the first thing they affect is your wallet.

Knowing you should have an emergency fund and knowing how to start one, however, are two very different things.  Here's a brief guide to get you started, so you'll be ready for this year's tax return, or any other emergency this year:

1.  Calculate your monthly spending and then multiply by six.  This figure represents how much you should have in your emergency fund at all times.  Essentially, you want to have enough to cover any expense you'd normally make for six months without any additional income.  Imagine that you are injured or ill and are unable to work at all for a month or two.  Your bills wouldn't disappear just because you weren't making money, so you'd have to have an alternative way of paying them.  Having six months of income saved might seem excessive, but you know the old saying: Better safe than sorry.

2.  Devise your saving strategy.  There's no one way to correctly save money; as long as you're saving, it doesn't really matter how it happens.  You can put it in a shoe and still be making progress if that works for you.  However, if you have no idea where to begin consider making monthly deposits into a separate savings account that you never use (except in real emergencies of course).  Think of it like a direct deposit to your future self.  You'll thank yourself later, even if it seems unnecessary now.

3.  Use sparingly and responsibly.  Often times when people begin saving money they make withdrawals too frequently for things that really aren't emergencies.  Use discretion and common sense when deciding what qualifies as an emergency; take out only what you need; and be sure to replenish what you take out as soon as you can.

Author Bio:
Jane Smith from background check is a Houston based freelance writer and blogger. Questions and comments can be sent to: janesmth161 @ gmail.com