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How to start an emergency fund
by Amy Podizus

We've all had one of those months, when everything goes wrong: Your car gets a flat tire...You get sick and suddenly have to pay a large medical bill...You get a ticket... And as your bank account nears zero before your regular monthly expenses are even paid for, you think to yourself, "If only instead of having to turn to credit cards or tap into my life savings, I had something else, like...like...an emergency fund!"
Not everything falls into the category of an emergency. Needing new clothes isn't an emergency. Neither is a last-minute vacation. Sure, new clothes are nice, and a vacation might make for some great memories, but neither are real emergencies. Losing your job and scrambling to pay next month's rent — that's an emergency. That may seem like an extreme example, but throughout your life, unexpected and unplanned events will occur. And an emergency fund is there for when 'life happens'.
Part of the reason you need an emergency fund is to keep your life from heading into a tailspin when the unexpected crashes in, but another reason is to stop you from relying on credit cards to bail you out when things get tough. An emergency fund is an account that you should not touch — ever — unless you absolutely have to.

How much should I save?

To be safe, you should try to have enough money in your emergency fund to cover all of your necessary expenses for three months. These are things you honestly can't live without, like rent, utilities, food, transportation, and required debt payments. That amount will vary from person to person, but you should have enough saved up to cover your necessities in case of a financial catastrophe.

How do I get there?

Three months' worth may seem like a lot, so you'll have to build it up over time. Add a certain set amount from each paycheck — one or two hundred dollars — and don't touch it. Repeat: do not touch it. Think about setting up an automatic recurring transfer from your checking to your savings account. You might even be able to get your employer to split the direct deposit on your paycheck, putting that money into a separate account automatically. It doesn't have to be a high interest account, either. The point is to set it aside, not to invest it.

What should I do with it?

Once you start building it up, it's important that you leave it alone. Resist the temptation to use it for anything you don't really need. Chop up the ATM card for that account if you have to. Think of it as someone else's money if it helps. The day may come when you need those funds — really need them — so don't spend them now unless it's an emergency.
Amy Podzius
Amy Podzius is a TIAA Financial Consultant based out of Chicago. Amy is a facilitator for TIAA’s Women to Women Financial Education Workshops and hosts an array of financial education seminars for participants at all ages and stages of their careers.

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