I spend all my money. How can I start an emergency fund?


Q. It’s coming up to the end of the year and I want to start better money habits. My first goal is to build an emergency fund. What’s the best way to do it, and where should I save it? I save in my 401(k) but after that, I pretty much spend all my income on expenses.
— Frustrated

A. Creating an emergency fund is a great goal to get started on.

Here’s how you can get started.

The first step to building an emergency fund is to calculate how much you need to save, said Debra Ohstrom, a chartered financial analyst and financial educator.

She said if you are spending all your income, you may need to create a budget so you can make saving easier. This will also help you to know what your total monthly expenses are and you can see if you need to cut back.

If you’re not sure you have the discipline to set funds aside, either see if you can have money set aside automatically from your paycheck into a separate account — similar to how your 401(k) contributions work — or have money transferred automatically from your checking account to your emergency fund.

“Generally speaking an emergency fund should be somewhere between three to six months of expenses depending on what you are comfortable with,” Ohstrom said. “Having this emergency fund allows you to take that next step of increasing your investment contributions so you can have a secure financial future.”

Ohstrom said the best place to keep your emergency fund is a high yield savings account or a similar account at a credit union.

“These accounts tend to offer better earnings rates on your money than a large bank savings account so you will be better off over time,” she said.

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This story was originally published on Dec. 9, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.