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Establishing an emergency savings plan is one of your most important financial moves. Traditionally, financial advisors suggest that consumers setup an emergency fund to cover at least 3-6 months worth of household expenses. However, under the current economic situation, they now recommend that you have enough funds set aside to make payments on at least 6-12 months of living expenses. You need this emergency savings cushion in case you’re affected by a sudden job loss, unexpected health-related issue, or even an accident. Americans are having greater difficulty finding jobs–realistically, it could take a year or more to find suitable replacement employment.

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Another benefit of having a savings safety net is that it can prevent you from having to rely on credit cards in times of financial emergencies. With such high interest rates, using credit when you don’t have the means to pay it off at the end of the month, can make your large emergency purchases (a new transmission, or trip to the emergency room, for instance) cost thousands more in interest and fees. Paying some of these surprise expenses off with cash will save you much stress and cash.

The first step when establishing a savings plan is to calculate your expenses in the form of a household budget. Our budgeting worksheet will help. The most important things to consider are needs versus what are wants. If you’re on a tight budget, list only necessities that cannot be eliminated. Cutting out items such as cable, hobbies, charitable donations, extra telephone lines, and gifts will help you get to your bottom line. Make sure to include car payments, utilities, insurance, food, and health care costs.

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Second review your budget once more to see where you can make some comfortable budget changes to allow you to start saving or increase your savings. Remember that anything you can do now will help you start to build your emergency savings fund. After reviewing and adjusting your budget, you should find that you have between 5 and 15% of your income available to deposit into savings each month. Use the numbers you have now to set a realistic time frame for your savings fund to reach your goal. No matter how much you can budget for savings, the key is to set something aside even if it is only $20 a pay period.

Third, consider your savings options. Make sure that the type of savings account you chose will allow you to make un-penalized withdrawals and that you have immediate access to the funds in case of an emergency. Check to see what the minimum deposit is required is to open a savings account. Select an account that has a minimum balance and amount of un-penalized access that will fit your needs. For most people with a modest savings, a basic savings account or money market account is fine.

Fourth, enact your savings plan and make sure to pay yourself first. After you have set up your savings account, the most important part of establishing your emergency fund is to start making deposits and sticking with a regular deposit schedule. Treat your deposits just like any other household bill. In fact, prioritizing your deposits is essential to achieving your savings goal. Many banks and employers offer direct deposit accounts for which the employer automatically deposits a portion of your payroll earnings into your savings account each pay period. You will be much less tempted to spend your savings when it’s out of sight and out of mind. When “left over” money is seen in the checking account, it usually gets spent. As more of a boost, is you get a raise, bonus or a tax refund, you could direct half of it to your savings. Like with the direct deposit, since you haven’t seen the money in your checking account, you’re much less likely to miss it.

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Once your emergency savings fund has been established and you have met your savings goals, you may feel comfortable in knowing that you have enough funds to bail yourself out in a time of need. However it is important to reevaluate how much you will truly need in your emergency fund and revisit your budget. Are you are happy with your current budget and the amount of emergency funds you’ve saved? Decide if you would like to continue to maintain the plan or make some changes. Keep in mind that establishing a non-emergency savings account and paying down debt are also very important financial goals that may be accomplished using many of the same steps outlined above.