How can I build an emergency fund and how much money should be in it?

To build an emergency fund, prioritize saving and make it as easy and automatic as possible. A common recommendation is to save three to six months' worth of living expenses in your emergency fund. To calculate this, add up all your "Needs"—housing, food, utilities, transportation, and insurance—from your budget and multiply that monthly total by three to six to get your target emergency fund amount. If you have a less stable income or dependents, you might even aim for closer to nine months or a year for added security. You can start small by aiming for an initial goal of $500 to $1,000.

Here are some strategies for building your emergency fund:

• Automate savings Set up automatic transfers from your checking account to your savings account each payday. This "pay yourself first" approach ensures that you are consistently contributing to your emergency fund without having to think about it.
• Pay yourself first As soon as you receive your paycheck, transfer a predetermined amount of money to your savings account before you start paying bills or spending on wants.
• Set clear and motivating savings goals Create specific, measurable, achievable, relevant, and time-bound (SMART) goals. Break these large goals down into smaller monthly or weekly savings targets.

It's important to keep your emergency fund in a separate, liquid account, like a high-yield savings account. This keeps the money accessible when you need it but separate from your everyday checking account to reduce the temptation to spend it on non-emergencies.