How to Set Yourself Up for Financial Emergencies

Even the best budgeting and money management skills can’t save you from situations where you’re hit with unexpected bills and expenses that go far beyond your monthly spending allotment.

From car repairs and home repairs to medical bills or a loss of income, financial emergencies are inevitable—and these complications can quickly put your finances in a hole if you don’t have a plan for covering these expenses and/or losses of income.

Whether you’re one of the 1 in 4 Americans who have no emergency fund at all, or you’re eager to increase your financial cushion to provide yourself with more financial stability, here’s an actionable plan to help you achieve this important financial goal.

Set a goal for your emergency fund.

An emergency fund should be your first line of defense. Experts recommend saving anywhere from 3-6 months to help you weather a loss of income and/or other financial emergency.

Depending on your situation and the financial stability you currently face, you may be comfortable with a smaller fund, or you might prefer even more savings.

Start saving whatever you can.

If you’re starting from zero, building up an emergency fund can be intimidating and overwhelming. Rather than assume defeat in the face of this task, commit to making modest contributions and saving what you can.

Even $25 or $50 a month can improve your financial cushion and help prepare you to handle smaller financial emergencies.

Related: Does a Personal Check Expire?

Trim your monthly budget to improve financial savings.

Once you set a habit of saving every month, it’s time to revisit your budget and look for opportunities to cut costs and put more money toward emergency fund saving—even if these changes are temporary.

You might decide, for example, to cut out restaurant spending for a month or two, or to scale back your entertainment spending by a certain dollar amount every month until you reach a specific savings goal. This temporary adjustment can create space for savings that offer greater financial security as you move forward in life, alleviating financial stress in exchange for a modest short-term sacrifice.

Line up a financial emergency contingency plan.

An emergency fund should always be your first line of defense, but it may not be enough to help you face certain financial emergencies. Access to lines of credit may be invaluable if you’re in a dire situation.

While taking on debt is never preferable—especially at high interest rates—the financial relief offered by credit cards, personal loans, and home equity lines of credit could be a difference maker when trying to overcome a financial emergency.

Adjust your plan as your financial picture changes.

Even when you succeed in creating an emergency fund and preparing for unexpected financial complications, you will need to revisit this plan over time to make sure it’s adequate to your needs.

For example, your existing emergency plan may not be sufficient if you then buy a home and place a child in day care, dramatically increasing your monthly spending. In response, you may want to increase your emergency fund to better reflect the rising costs you are facing.

On the flip side, after your children enter school—or move off to college—you may prefer to take a portion of that emergency fund and move it into investment accounts where those funds can generate earnings of their own.

Don’t wait for unexpected events to occur.

While it’s never fun to think about the different scenarios that could cause you to lose income and/or financial stability, the challenge of these emergencies is that they can strike at any time. By preparing for these surprises before they take place, you will be in a great position to weather these financial storms without taking on debt, defaulting on loans, or being unable to pay your bills.

Discover more tips to improve financial security through an emergency fund—download our free infographic, “4 Tips for Building an EF Savings Account.”