The first step is to take a look at the budget for two reasons. One is to figure out where spending can be cut to put toward the emergency savings. The other is to see what constitutes a month’s worth of expenses in order to determine the savings goal. People should focus on necessities as they calculate how much money they will need to cover six months of expenses.
There are several ways to boost the amount in the emergency savings fund. Creating a split direct deposit, in which part of a paycheck goes into the checking account and another part goes into savings, makes saving money easy. Some banks offer cash bonuses for opening a new account, and this can be used to boost what is in the emergency fund. It may also be worthwhile shopping around for a high-yield savings account, which is an account that pays more in interest than most other banks. Unexpected windfalls, such as tax refunds, gifts, and other funds, can be added to emergency savings as well.
It may take a few years to reach the goal of six months in expenses. From this point, it may be advantageous to continue savings in case of serious events, such as a year or more without a job. Eventually, people who have enough in their emergency savings to feel comfortable about economic uncertainty may want to divert more money into higher-yield investments, but it is important to always keep an emergency fund that can be quickly liquidated if needed.