Building an emergency fund is a crucial step to achieving peace of mind should any of a number of unforeseen occurrences rear their ugly head. This emergency fund is a good step for anyone to undertake, but to achieve this one should ideally put themselves first in a position where theyre debt free. It just doesnt make sense to stick money in the bank for a rainy day when it could instead be used to pay down a high interest loan, and in the worst case scenario, that line of credit can be used as your life line, and will be in much better shape to be used as such.

Ideally though, your debt will be paid off and the emergency fund can fulfill its true purpose, to be used in times of need in place of costly lines of credit. To first determine the amount your fund should contain is a simple job of tracking your expenditures. Having an emergency fund that totals at least 1 month of your total living expenses is the bare minimum required, and 3 or even 6 months is the more recommended amount.

No matter our income, this can be a tall task for just about anyone, as our lifestyle is likely firmly rooted to our income. Youll almost certainly need to make some changes to your lifestyle to cut out some of the excess spending that can in turn be used to fund your...fund.

Setting a firm goal of how much you will put away each month or with each pay check can make this process much easier on you. Dont even let yourself think about what you could do with that money instead, just put it away and forget about it. Another tool that can be used as motivation is to reward yourself with something each month when youve met your target goals. If you have the discipline necessary to avoid rewarding yourself anyways though, you may not need a reward as a motivation to do it. Ultimately that is the key, you have to want this security for yourself and want to make the sacrifice, or find the task hard going.

The easiest way to alter your budget just enough to allow for money to be added to your fund is by cutting out some of the extraneous purchases or bills you currently indulge in. That expensive gym membership that you rarely make use of can be substituted by working out at home and saving costly gas for your vehicle as a bonus. On the topic of gas, a bike is a great purchase and should be used as often as possible, weather permitting. Not only will it save you a bundle on gas, its also great exercise. Instead of buying a coffee at the local coffee shop each morning, make your own home brewed coffee. For the price of a few coffees you can have weeks worth.

When youve got your fund saved away, now the question of when to use it rears its head. What exactly qualifies as an emergency? This is up to the discretion of each person, but certainly an even such as having to get your car repaired, your pet needing medical attention or water heater going haywire are all cause to break into the fund beyond regular household expenses. After the crisis has passed, you should immediately set about replacing that money in your fund. The goal is to never have to rely on credit cards again, or at least to use them sparingly.

Building an emergency fund will take some time, commitment and a possible temporary change in lifestyle. The security youll have with that fund sitting safely at the ready will more than offset these small and fleeting inconveniences.