Start an Emergency Fund Before Disaster Strikes
It takes discipline and planning to save. Saving means putting off using money today in order to have money for future needs.
For people on very tight spending plans, saving may seem like an impossible dream. Those that have experienced disasters have said that an emergency fund is extremely useful in getting immediate needs met after a disaster.
Why Should You Start an Emergency Fund?
Savings are a very important part of managing money and protecting a family.
- Emergency savings is money set aside for unplanned emergencies. Each family or person must decide how much money to set aside depending on the types of unplanned expenses they may have. It might be money to replace a broken appliance, repair a tire, or travel to a sick relative. It might be $25 or $500.
- Emergency income savings is money put aside to pay the rent or mortgage, utilities, car payment, and car insurance if your income stops for a few months. This money could stop eviction or foreclosure, or car repossession, until your income starts again.
Both types of savings make up your emergency fund.
It is important to save steadily so you have enough money for emergencies, rather than not save because it seems impossible to put enough money aside.
Getting Started with an Emergency Fund
If you do not know your current budget, it may be hard to decide how much you can afford to put into an emergency fund. It will be helpful for you to first complete a Spending Plan. (See Action Page 3-2: Spending Plan (289 K PDF) from Dollar Works 2.)
If you already have a tight budget, there are two major ways for finding money to save: cutting expenses or bringing in more income. Brainstorm the options for cutting and/or bringing in more income with your family. Once you have decided on some options to pursue, use the Action Page 5-7: Getting Started: What Can I Do? (204 K PDF) to document how much you intend to save and how you propose to find the money to save.
While you don’t need a separate savings account to get started, it may be in your best interest to use an official account of some type for your emergency savings. In the event of a disaster, you will really need to access your emergency fund. If you’ve been keeping that in a jar in your house, your fund could be destroyed in that disaster. Also, by keeping your emergency fund through an official savings account of some type, you may be able to earn interest and further increase your overall fund.
One you have a plan in place, remember to keep saving simple! Keeping it simple will increase the possibility of success. If you completed a spending plan, make your emergency saving a priority on your spending plan. One method to simplify building an emergency fund is called “Pay Yourself First.” It means making savings a regular expense, just like the rent or mortgage. There are a couple of ways to make this happen:
- Put a specific dollar amount or a percentage of pay directly into a savings account. This eliminates having easy access to the money to spend it before it gets deposited in an account.
- Put loose coins from pockets or purses into a jar at the end of each day. When the jar is full, take it to the bank to deposit it in a savings account. The money will add up quickly!
- If you earn tips, put all tips into savings. When the jar is full, take it to the bank to deposit it in a savings account.
- Put part of gift money into savings.
- Put some of bonus money or pay raise money into savings.
- Deposit part of a tax refund directly into a savings account.
This has been adapted from Anderson-Porisch, Heins, Petersen, Hooper, and Bauer’s Dollar Works 2: A Personal Financial Education Program (2007, St. Paul, MN: University of Minnesota Extension). Permission received from the authors. Get more information on Dollar Works 2.
Disaster Recovery — Offers families new or additional resources following a disaster. Includes the Recover After Disaster: The Family Financial Toolkit.
Extreme Weather — Extension resources for floods, wind damage, wind impacts, and more.