No matter how disciplined you are at sticking to a monthly budget, inevitably something will come up that will throw you for a loop. Unexpected car repairs or a sudden trip to the emergency room can turn into a big expense. If you put a plan in place now, you’ll be prepared to deal with these expenses without major disruption to your budget or lifestyle.
A good rule of thumb is to build up a savings equal to three to six months of living expenses. That may seem daunting at first, but if you set aside a little every month, your savings will gradually grow.
The best way to ensure you are saving is by making it automatic. Set up your accounts to automatically transfer a certain amount from your checking account into your savings account on a regular basis.
A couple other tips for crafting your backup plan:
- Be sure that your emergency funds are “liquid” – meaning they are immediately accessible and not subject to market volatility.
- Consider a Personal or Home Equity Line of Credit. Used with caution, these can allow you to spread out paying the expense over a longer period of time.