How to Build an Emergency Fund

Building an emergency fund is a critical first step on the road to financial security. Many people think that they do not make enough money to build an emergency fund, but even low-income workers can set money aside if they take the right steps.

Take Note of Daily Expenses You may think you have no extra money to build an emergency fund, but those extra dollars could be hiding in plain sight. Take a few minutes to review your normal daily expenses, from that morning cup of coffee and lunch with coworkers to daily parking charges and the take-out pizza you grab on the way home.

Look for ways to economize and swap high costs for lower ones. Bagging up your leftovers from last night's dinner could save you $10 or more a day -- that's several hundred dollars a month. Making your coffee at home could save you $20 to $50 more, while skipping the take-out once or twice a week could save you $100 or more. If your town offers public transportation, swapping your car for a bus or trolley could slash your parking charges and save you even more.

Start a Piggy Bank Now that you have identified the leaks in your daily budget, you can use that knowledge to start building an emergency fund. Take that $10 you would have spent on lunch and place it in a special spot in your wallet. When you get home, transfer that cash to your new piggy bank and watch the money accumulate. When your bank is full, you can use the money to start the savings account that will become your emergency fund.

You do not have to confine your savings to folding money. Change works just as well, and it is much easier to accumulate. Every time you get change, keep it in your pocket until you get home, then transfer it to your piggy bank. You may be surprised at how quickly that spare change adds up.