Six Steps to Creating an Emergency Fund | Morgan Stanley (2024)

FAQs

Six Steps to Creating an Emergency Fund | Morgan Stanley? ›

One of the best ways to start building your emergency fund is to set a small goal and work your way up. Start by saving your first $1,000. This may seem like a daunting task, but it is doable if you are disciplined and stay focused.

One of the best ways to start building your emergency fund is to set a small goal and work your way up. Start by saving your first $1,000. This may seem like a daunting task, but it is doable if you are disciplined and stay focused.

Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

The long answer: The right amount for you depends on your financial circ*mstances, but a good rule of thumb is to have enough to cover three to six months' worth of living expenses. (You might need more if you freelance or work seasonally, for example, or if your job would be hard to replace.)

An emergency fund should cover three to six months' worth of expenses, but saving that amount takes time. To help get you started, begin with small goals, such as saving $5 a day. Then work your way up to a reserve to cover several months' worth of expenses.

Do 90% of millionaires make over 100k a year? ›

Ninety-three percent of millionaires said they got their wealth because they worked hard, not because they had big salaries. Only 31% averaged $100,000 a year over the course of their career, and one-third never made six figures in any single working year of their career.

Income shocks tend to be more expensive and last longer than spending shocks. They also tend to happen less frequently. To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses.

"While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income and dependents, the rule of thumb is to put away at least three to six months' worth of expenses," advises Wells Fargo, one of the country's biggest banks.

Plan your savings goal and how much to set aside each month. Now it's time to set a savings goal and make a plan to get there. While there's no one-size-fits-all goal for everyone, many personal finance experts recommend saving three to six months' worth of essential expenses.

A Millionaire's Best Friend: Compound Growth

Here's a little secret: Compound growth, also called compound interest, is a millionaire's best friend. It's the money your money makes.

Saving automatically is one of the easiest ways to make your savings consistent so you start to see it build over time. One common way to do this is to set up recurring transfers through your bank or credit union so money is moved automatically from your checking account to your savings account.