People can be at financial risk with recent economic uncertainty, rising healthcare costs and natural disasters. Using credit cards to pay bills may quickly build large high-interest debts. While trying to recover from a financial emergency, rapidly increasing debt becomes yet another major hurdle.

An emergency fund provides a cushion to stay afloat while recovering from unexpected situations. According to financial experts, everyone should have enough savings to cover 3-6 months of bills. This cushion allows people to weather the storm and come out of a financial crisis debt-free.

If you don’t already have an emergency fund in place, it is suggested that you start working on one now before an emergency strikes. Use these 3 useful tips to make your emergency fund efforts successful.

1. Keep Track of Spending

Creating a budget isn’t all that complicated. Jot down categories of monthly spending and amounts you spend. List all fixed-amount monthly bills: rent/mortgage, utilities, credit card debt, etc. List monthly payments with varying amounts: groceries, eating out, clothing, gas, etc. Estimate what you really spend, not what you’d like to spend. Don’t forget coffee, dry cleaning and other small daily items; many people discover they’re spending much more than they think on these “discretionary” items. Compare the total actual spending to your take-home pay. Hopefully, your income is enough that you can have extra money each month for your emergency fund.

2. Treat Your Emergency Fund like a Monthly Bill

In your budget, add a line for your emergency fund. If you don’t have excess income, try to find ways to reduce other expenses so you can start this saving habit. Put a fixed amount of your regular paycheck into a special emergency fund account; use payroll deduction or electronic funds transfer so it happens automatically each month. After you’ve met your emergency savings goal, keep going; start saving for college, retirement or other goals.

3. Keep Emergency Funds for Emergency Needs

As the emergency fund builds, it becomes tempting to use for other desires: a vacation, new car or shopping spree. If you give in to temptation, you’ll be back in the same dangerous position if a real emergency arises. Instead, use your good habits to save money for these other opportunities. If an unforeseen event occurs, like a major car repair, an unpredicted medical expense or a tree demolishing your garage, dip into the emergency fund. Then start saving again to replenish it.

We all hope and plan for everything in our lives to go right, but that doesn’t always happen. If you have set aside an emergency fund, you’ll be more prepared if the unexpected happens.

Discover Bank, Member FDIC

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