Over the course of the past year, many families have found themselves with the need to tap into their emergency fund. Those that had set aside money in case a need arose were glad to have those funds available. Way too many people though don’t have any kind of an emergency fund. According to a recent study, a third of Americans have no emergency money set aside at all. Of those who do have an emergency fund, nearly 60% have not set aside enough to cover even three months worth of living expenses.

It’s a great idea to begin building an emergency fund, and it’s possible even during a recession. There are some key steps in order to begin setting aside some cash in an emergency fund.

First, have a budget, monitor that budget, and stick to it. Too many people have no idea what their costs really are, and without that knowledge it’s impossible to know how much you can start saving. Figure out how much it costs to support your lifestyle for a month. This will help you to set a savings goal.

Second, determine how many months worth of living expenses you need to set aside. This will vary from person to person. Only you know how stable your employment situation is. A married couple with two stable jobs may need to have less in an emergency fund compared to an individual with a job that’s less than stable. A good rule of thumb is that you should be able to survive without a paycheck for at least three months.

Next, find a safe, stable place to keep the money. This is not money that you should be willing to put at risk. If you can find an interest bearing savings account, that’s great, but don’t chase a higher yield if it means locking your money up or putting it at risk. In a true emergency, access to your money will be much more important than any interest you might earn.

Finally, start saving and measure your progress. If you can have some amount of money deducted automatically from your paycheck, that’s the best way to ensure that it gets to and stays in your savings account. You may need to reduce the amount you’re putting into retirement accounts temporarily in order to build your emergency fund. You will not accumulate all that you need overnight, but over time you will sleep better at night knowing that you’re not one leaky roof or faulty furnace from serious financial problems.

One more thing-remember that a home equity line of credit can be used in the case of an emergency, but it should not be considered your emergency fund! With home values falling, lenders could freeze your line of credit without warning, eliminating the possibility of accessing cash when you need it.

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Tags: budget, cash, Emergency Fund, expenses

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