Good Question: Separate emergency fund from savings

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Question: I want to start building an emergency savings fund, but I'm not sure where to start. What do you suggest?

Answer: Building an emergency savings fund is essential groundwork for your personal financial security. All types of financial emergencies can happen, such as unexpected home repairs, car repairs, medical issues/care, or unexpected job loss. If you are in a single-income family, it is even more important to establish an emergency fund since there is no other income to fall back on.

Before you can begin to determine what you can save, you need to create a realistic budget, making sure to include periodic expenses. The goal is to make sure basic needs are covered while keeping honest about spending habits. This also is a great opportunity to see where you can cut back. If it seems your budget is already tight, then try creating a budget where only the items you must pay for are included. You can see if there's any surplus left and determine if there is room for extra spending and savings.

It is also important to re-evaluate a budget often as income and expanses do change.

After you have worked out a budget, establish what your savings goals are for an emergency fund. A good goal to start with is three months of expenses set aside, although it is recommended to have six or more months due to the current job market and economy. A realistic goal for most people is 5 percent to 15 percent per paycheck. Also, any extra income such as a bonus or tax return could be added to your emergency fund as well.

Create a separate account for your savings. Make sure the account doesn't have any penalties or fees for taking out the money when you need it. Be aware of any minimum balance requirements and the time frame with which you can withdraw your money.

Make sure you deposit the same amount from every paycheck. Automatic deposits will ensure you don't miss a pay. Do not allow yourself any excuses for not placing the same amount in every time.

Now for the difficult part of the emergency fund -- Don't Touch It. The money you place here should be taken out for unexpected circumstances only. Once you start making excuses to use the money, you have created a habit of giving and taking as you feel necessary.

There is a point where you may reach your goal for your emergency savings. At this point it's important to acknowledge the accomplishments and financial security you have made for yourself.

It is suggested, though, that you still continue to put aside the same amount of money, perhaps in another savings account for periodic expenses, to help pay down debts, or even for a family vacation or future event.

Heather Murray is manager, regulatory compliance and education, for Advantage Credit Counseling Service (dba Consumer Credit Counseling Service). For information about the agency's services, visit or to access the free online budgeting tool go to Email Ms. Murray at Provide your name, address and daytime telephone number. Because of the volume of questions she receives, Ms. Murray cannot always respond.

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