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How to Build a Family Emergency Fund

In hard economic times like these, it’s difficult enough to make ends meet. To some, the idea of setting aside cash seems like an impossible dream. Other families, like Todd and Laura Bruce from WE tv’s Downsized, find their emergency fund depleted from unemployment, medical bills or other unexpected expenses.

In fact, close to 75 million people in this country have no cushion to help handle life’s surprises, reports. So how do you put aside money for a rainy day when life feels like a steady downpour? Here are 4 steps to building a family emergency fund:

Step One: Know What You Already Spend

You can’t make a plan to save if you don’t know how much you pay out. Make a list of all your expenses including mortgage/rent, utilities, groceries, insurance, car-related costs, taxes and the all-important discretionary spending.

Step Two: Set a Goal

Most successful savers find they need to keep their eyes on the prize. Once you know your monthly expenses, you should have at least three to six times that in your emergency fund to cover the cost of unexpected bills, home repairs or layoffs. According to a recent poll, only 24 percent of Americans have this six-month cushion and another 24 percent have no savings at all.

Step Three: Put Your Savings to Work

Decide where to keep your money. Even people who have an emergency fund aren’t always putting their savings to work. Many Americans have their money in low-interest accounts, meaning they are losing hundreds of dollars each year. Be sure to pick the right account for your money.

Step Four: Start Saving

Here’s where most people get lost, so let’s break this one down into a series of mini-steps:

• Review Your “Fixed” Expenses
Take stock of your large bills. Interest rates are at an all-time low, so look into refinancing your mortgage to save hundreds of dollars each month. Check to see if your utility offers any discounts for off-hour usage or free energy savings programs. Try bundling your services like phone, cable and Internet to lower those bills. Lastly, review your insurance policies. Higher occasional deductibles can be met more easily when you have an emergency fund, and doing so will lower your monthly out-of-pocket costs.

• Put Some Discretion in Discretionary
Take a look at your discretionary spending. Do you need that gourmet coffee on the way to work each morning? Could you stay home and rent a movie instead of taking a family trip to the local cinema, or have one less dinner at a restaurant each month? Every time you skip that morning java or the next big action flick, put the money you would have spent into your savings account.

• Add Savings to Your List of Bills
Most people bank what is left over after the bills are paid. Successful savers take money for the emergency fund off the top. Treat it like a bill with a due date and it will always get paid.

• Keep the Change
You had a piggy bank when you were a kid — why stop now? At the end of the day, throw your loose change in a jar and cash it in at the end of every month. Deposit that into your rainy day fund. Some people have even increased this practice to reflect the times and now throw singles into the jar, carrying only larger bills in their wallets.

• Start Your Own Rewards Program
You don’t need a credit card to get cash back — you can start your own rewards program. Every time you tip a server 15 percent, deposit the same amount into your savings. If you return a movie rental or a library book on time, pay yourself the late fee. Deposit $.25 into a can every time you do a load of laundry or make a phone call, as if you were paying for those luxuries we now take for granted.

• Change Your Habits
Smoking, drinking and even an addictive sweet tooth can make a huge dent in your wallet. Forgo the afternoon candy bar, post-dinner drink or daily pack of cigarettes. Live a healthier lifestyle and bank what you would have spent to feed the habit.

• Keep Paying for the Paid-Off Car
If you just made your final car payment or paid off another large debt, keep writing the check anyway, but deposit it into your savings instead.

• Don’t Save for Tomorrow Until You Save for Today
If you contribute to a retirement account or make extra payments on loans, temporarily put that money into your emergency fund until you reach your goal. Once your savings is fully loaded, you can begin putting away money for the future again. Plus, this will stop you from borrowing from a retirement account in case of unexpected expenses, which could be a very costly loan.