Have you ever heard the phrase "saving for a rainy day"? Though that "rainy day" might be far off, it's important to establish an emergency savings now so that you have the necessary funds if and when you need them. This emergency fund can help you cover your monthly costs should you become ill, need car or home repairs, or find yourself without a job.
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Your emergency fund should typically be enough to support you financially for about six months. The first step to establishing an emergency fund is calculating your total monthly expenses. When you are figuring out your cost of living, be sure to include the following reoccurring expenses:
• Housing - Include rent, mortgage, insurance, taxes, utilities, and repairs.
• Food - Estimate your average cost of food each month, and include this expense.
• Health care - Your emergency fund should include monthly costs for medical and dental insurance.
• Transportation - Factor in your monthly car payment and costs for insurance, fuel, basic maintenance and repairs.
• Debt - Don't forget to include your monthly debt repayment costs.
After you have established how much your emergency fund needs to cover, it's time to set a savings goal and develop a plan to reach that goal. Decide what you would like to save each month in order to develop your emergency fund and set aside money each paycheck to reach your goal.
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