How to build an emergency fund
Even if you’re great at planning your spending, you can’t always control the unexpected. Life happens.
The unexpected can affect your belongings, you, or the people around you. Your car might break down and need pricey repairs. A loved one might have health issues. The list goes on.
To handle these surprise expenses, you need an emergency fund.
What is an emergency fund?
An emergency fund is money you set aside for life’s unexpected moments. It could be a medical emergency, or other expenses you weren’t planning for but that come up anyway. That fund keeps you from drowning in debt and lets you handle surprises without stress.
How to build an emergency fund
According to experts, it’s smart to build and maintain an emergency fund equal to three to six months of your regular expenses.
To get there, you need to:
- Start by setting a monthly savings goal and a plan to fund it regularly.
- For example, create a vault in the Djamo app and stash your savings there.
- Turn on “spare change” or “recurring transfers”. That way you’ll save without even thinking about it.
How much should you set aside?
Your emergency fund should match your financial capacity and your regular expenses. It shouldn’t be too small or too big. The usual advice is 3 to 6 months of regular expenses. To stay on track, add small amounts regularly. Here’s an emergency fund calculator to help you figure out the amount.