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Steps to Financial Independence: Building Your Emergency Fund

Having an emergency fund close at hand means you can afford any crisis that comes your way. From losing a job, covering a medical emergency, handling a car repair, or anything else that happens in-between. Having a solid financial safety net is a key to financial independence. Check out some steps and strategies that can not only help you recover, but also strengthen your financial cushion, providing you with peace of mind and security in the face of future challenges.

Step 1: Determine Emergency Fund Amount

Your emergency fund should have anywhere from three to six months worth of living expenses. Take some time and calculate how much you spend each month to come up with a good number. Some situations might require more and some less. It is important to assess your lifestyle and decide on the best number for you.

Step 2: Make a Budget

If you do not already have a budget, now is a good time to make one. There are countless good budgeting apps out there. Having a budget helps you to visualize your expenses and figure out where you can save. Get free access to our Home Budget Calculator or Student Budget Calculator today!

Step 3: Find Expenses to Cut

In order to build your emergency fund, you will have to cut out some expenses. This might look like only getting a coffee once a week compared to four times a week. You could also make extra money by selling some of your belongings. Go through your closet and sell clothes that you don’t need or don’t wear. Save on groceries by meal planning. These are just a few ideas, there are countless ways to save.

Step 4: Make Consistent Contributions

Set a monthly or even weekly savings goal and get that amount automatically transferred to your emergency fund each month/week. By making consistent and automatic contributions, you won’t be tempted to spend your savings on anything else.

By taking small steps to cut back on your spending and monthly expenses, you can build up a good sized nest egg overtime. This safety net will come in hand when you least expense it and minimize the chances of racking up debt.