Every financial expert will tell you that you need to have an emergency fund. Building an emergency reserve should form a vital part of any good financial plan. It will mean that you have money set aside to cover financial surprises, for instance if you have to fork out for high-priced home repairs or lose your employment. Having an emergency fund will also give you peace of mind knowing that you will be financially secure if these situations arise. Here are four steps that you should take to start an emergency fund. 

Step 1: Create small savings goals 

Most financial advisors recommend that you have between three and six months of expenses in your emergency fund. So, if your monthly expenses total $2,000, then you should ideally have between $6,000 and $12,000 in your emergency reserve. However, saving this amount can seem like an unfeasible task when you are trying to balance multiple payments such as student loans and other debts. Trying to save the recommended emergency reserve can be daunting, so it’s best to set yourself small achievable goals to start with. For instance, set yourself a goal to transfer $100 into your emergency fund each month, or more if you can afford it. This will motivate you to keep building your emergency fund and your savings should quickly add up over time. 

Step 2: Streamline your expenses 

Your expenses can be divided into two categories: essential and non-essential. Essential expenses include things like rent, mortgage repayments, utility bills, and groceries. Whereas, non-essentials items include clothing, social activities and eating out at restaurants. If you are serious about growing an emergency reserve, then you should focus on streamlining your expenses. Instead of going out for a fancy meal, eat at home and put the money you would have spent into your emergency fund. You should also take advantage of coupons and discount codes to save money on everyday expenses. For example, use an Old Navy coupon to lower your clothing expenses. 

Step 3: Make sure that your emergency fund is accessible 

Your emergency fund must be kept in a place where you can access it quickly in an emergency. Most people choose to keep their emergency fund in a high-yield savings account that offers high-interest rates and easy access. According to, another popular option is to keep your emergency reserve in a money market account. The main advantage of a money market account is that they usually come with a debit card and checkbook. However, most money market accounts require a minimum deposit, so this may not be an option when you first set up your emergency fund. 

Step 4: Make contributions automatic 

The best approach is to calculate what percentage of your salary you can afford to pay into your emergency reserve each month. Then, set up an automatic contribution so that this money is transferred at the beginning of each month. This will make it far easier to grow your emergency fund.