Avoid financial ruin

Life rarely goes as planned. That's why it's always good to have an emergency fund in the bank.

Many people could have avoided enrolling in a debt management plan had they had any type of emergency fund set up. There are many people out there who are living so paycheck to paycheck that a blown transmission would send them into bankruptcy. An injured child or a natural disaster could easily be handled with additional funds.

Avoid letting unexpected expenses or events lead you to financial ruin. Build your emergency fund by using these tips.

Determine how much you need

Start building your emergency fund with a specific goal in mind. While your savings goal will depend on your income and expenses, a general rule of thumb is to save enough to cover four to seven months' worth of expenses.
Everyone has wants, needs and desires when it comes to spending money, according to the Capital Financial Advisory Group in Cary, N.C. Make sure you have seven months' worth of emergency income available for the needs.
Focus on having enough to cover expenses when setting your savings goal, not on replacing your entire income.
Remember, in an emergency, we don't fund vacations, fancy new clothes, dining out or other luxuries.

While you may aim higher eventually, Smith recommends making small goals at first, such as saving $1,000 and working your way up to a reserve to cover several months' worth of expenses.