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More than half of the families in America are living paycheck to paycheck. According to the Federal Reserve, at least 32% of American families would find themselves in dire straits if a significant financial emergency occurred.

And the higher the expense, the less likely they can afford it.

The typical rule of thumb is to save three-to-six months of your monthly expenses for emergencies. This looks different depending on your family situation. In theory, a couple with no kids will have more access to extra cash than a family of five might.

Regardless, you need a plan, and the first step is to decide what types of emergencies you want to prepare for — car repairs, hospital stay, hurricane or tornado damage to your home — and then take steps to ensure that you’re ready for them when they happen.

You’ll want to consider the most critical expenses in an emergency and the nice-to-haves that could be avoided or reduced in a crisis.

Managing your finances can be stressful, but it doesn’t have to be. Making a plan for unexpected emergencies is key to managing your money and keeping stress levels low. Let’s get started.

I. Create a buffer

Planning for financial trials starts with ensuring your budget has some wiggle room. If you’re already at max spending, look for ways to save on insurance, groceries, cell phones, etc. You can also cancel services like entertainment subscriptions to create a buffer if needed.

Use your buffer to start an emergency fund. Set a goal for how much you want in the fund and set aside some money each month. Once you have your emergency fund in place, the next step is to keep it growing. You can set up an automatic transfer from your checking account into a high-yield savings or money market account every month to build up a healthy buffer.

Your buffer size depends on your income, essential bills, and how long you can live without one income if you are in a two-income home.

Kelly Klingaman, the founder of Kelly Klingaman Financial Planning (KKFP), says, “I typically encourage families to build up three to six months of their static living expenses – what are specific bills they’ve committed to paying in the past that they must continue to pay in order to run their household like the mortgage, utilities, childcare, etc. – plus whatever amount is needed to pay for variable but required expenses such as gas and groceries.

“This could potentially be tens of thousands of dollars for a particular family, so helping clients create markers for micro wins along the way will encourage them to continue their systematic, disciplined process of saving.”

II. Balance your books

Balancing your books is essential to managing your financial situation, particularly if you live paycheck to paycheck. It’s important for you to keep track of how much money is coming in and where it’s going out so that you can spot any problems before they become serious.

If you’ve lost track of your finances, take some time right now to review all the accounts in which you have cash savings or investments, such as checking accounts, savings accounts, company stocks, and retirement funds. Write down each account and who holds those assets on behalf of yourself or others.

You may also want to keep track of household assets such as cars or real estate property—this information can help determine the amount at risk should something unexpected like losing a job.

Once you’ve made this list, consider transferring some money from each account into another just for emergencies so that you have around three months’ worth saved up. This way, when emergencies arise—whether due to illness or unemployment—you know exactly how much money will be available.

III. Prioritize access

Accessing your emergency funds for financial crises is more important than worrying about the interest rate. You should always have access to your money. Don’t turn to credit cards or other high-interest loans to pay for emergencies when you already have money available in different accounts.

To ensure quick access to emergency savings, you may want to consider opening a second bank account. That way, you can quickly use the money in an emergency. If the account comes with a debit card, you can store that card in a safe place when needed. If you are responsible with credit cards, another option is to use your credit card in an emergency and immediately pay it off with your emergency fund.

IV. Pay for emergencies first

Don’t put it off when you’re stuck with a sudden medical bill. If you can’t pay for something now, take action as soon as possible. Don’t borrow money to cover an emergency expense—that only makes things worse in the long run and leaves you in debt. Pay for things that are urgent and necessary and set up payment plans for other things if needed as well.

Nothing is worse than going into high-interest debt to pay for an emergency. Therefore, even if you aren’t making a high-interest rate on your emergency savings, it could help you avoid paying 10% plus interest from using a credit card or, even worse, something like a payday loan.

V. Consider insurance

If you’re not already covered, consider taking out a few types of insurance. For example, life insurance can help your loved ones if you pass away unexpectedly, and disability insurance can provide income if you become sick or injured and aren’t able to work.

In addition, auto, homeowners, and renters insurance are important for protecting your property from fire and theft. Dental and vision insurance may be worth considering, too—they protect against the high costs of routine dental care or glasses/contact lenses that aren’t covered by medical plans.

These policies can not only help shield you in the event of a financial emergency, but they can also make the cost much less than if you didn’t have them.

According to the Federal Reserve, “Twenty percent of adults had major, unexpected medical expenses in the prior 12 months, with the median amount between $1,000 and $1,999. Fifteen percent of adults had debt from their own medical care or that of a family member (not necessarily from the past year).”

Even if you don’t know the emergency, you can prepare for it financially. Setting aside money to cover the cost of emergencies and being out of work is essential. Then, when you have savings in play and insurance policies, if applicable, you can be confident that you and your family will be taken care of.

The importance of preparing for a financial emergency

Nothing can set your family back more than an unexpected financial emergency you’re unprepared to handle. However, with three-to-six months of emergency savings, proper insurance, and quick access to that money, you should be able to avoid a crippling situation.

Building an emergency fund should be one of the first steps in your financial journey. One thing is for sure; emergencies will happen. Tires will go flat, refrigerators will go out, people will get sick, and basements will leak. Hopefully, not all at the same time, but you get the point. If prepared for these unexpected expenses, you will live a more stress-free financial life.

According to a recent study by Ramsey Solutions, personal finances and money were the top issues causing stress, with 1 in 5 saying their money caused them a “significant” amount of stress.

As noted above, one of the best ways to build your emergency fund is to hide money from yourself in a separate account. For example, the next time you get a small raise at work, take that money and have it automatically deposited into a different bank account instead of increasing your spending. Over time, that account will grow to cover several months of emergency savings.

This article was written by Mark Patrick from Wealth of Geeks and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected]