Setting up an emergency fund to prepare yourself for a worst case scenario is important. With a proper emergency fund, you will have the cushion needed to survive an unexpected job loss, medical expenses, home or auto repairs or any other financial situation that may put you in dire straits. With a little bit of spare cash, you can avoid having to use your credit card or borrowing money from friends or family; any additional debt will just make the situation worse in the long run.
Your long term goal should be to have 3-6 months of expenses covered in your bank account. But as the saying goes, “Rome was not built in a day,” and neither will your emergency fund. So make your immediate goal smaller and more realistic. Start by setting up an automatic transfer of $15 per paycheck into your savings account and under no circumstances should you touch that money.
The goal for you first emergency fund should be a $500 cushion, plus a well stocked pantry of healthy and nutritious foods. The $500 cushion in your bank account can help you prevent checks from bouncing, from missing a payment on your credit card, and from taking out a costly loan from a payday lender. With that and a cupboard filled with pasta, beans, tuna, pasta, sauce, whole grains and canned goods you will be able to feed yourself while you try to rebuild your emergency stash.
Once you reach $500 in emergency funds, you can continue to transfer additional money. The larger the amount grows, the less stress you will have when the worst case scenario happens.