Tips on How to Build an Emergency Fund

Brad Stroh, Bills.com, 650-393-6210, brad@bills.com
Aimee Bennett, Fagan Business Communications, 303-843-9840, aimee@faganbusinesscommunications.com

SAN MATEO, Calif., Feb. 28, 2007 – Conventional wisdom holds that individuals need to save three months’ to six months’ worth of living expenses in an emergency fund, but a 2005 survey found that 41 percent of Americans polled have no emergency funds at all. With the nation's savings rate hitting an all-time low last year, Andrew Housser, co-founder and co-CEO of Bills.com, a free online consumer finance portal, says those statistics are unlikely to have changed, but an emergency fund is an attainable goal.

"The idea of socking away half a year's expenses can induce a mild panic," Housser said. "But before you write off this bit of financial planning wisdom as impossible, look closely at what it means -- and realize that, with time and patience, anyone can be prepared for the unexpected, whether a job loss, illness or surprise addition to the family."

1. Focus on expenses, not income. Try to save funds to cover three to six months' of expenses -- not income. Remember, in an emergency, we don't fund vacations, fancy new clothes, dining out or other luxuries. For suggestions on identifying "must buy" budget categories, review a budget guide such as the one at http://www.bills.com/guide/.
2. Take it slowly. Rome wasn't built in a day, and neither is an emergency fund. It's easy to panic with a savings account in the low two-digit figures. "Any action you can take to establish an emergency fund will do you good," Housser added. Begin by using basic techniques: Each week, transfer $10 to a savings account, and you'll have $500 in a year.
3. Do the possible. "Think you can't afford to save? Join the club," Housser said. "Save by paying yourself first, and put aside what you can." Establish a monthly savings goal and turn that into a "bill" to pay with other bills. Ideally, banks will automatically transfer funds into a savings account on a set day. If necessary, cut out some discretionary expenses to save a bit. Sell unneeded items on eBay, hold a yard sale, or put change into a jar every evening, and save the proceeds when you cash it in.
4. Be prepared with insurance. In addition to savings, cover assets with insurance policies. Having home, auto, health, disability and life insurance provides peace of mind. Should something happen to the family's breadwinner, the family will not have to cope with total loss of income and instead can focus on caring for each other. Some people also opt to purchase "umbrella" liability coverage to protect against litigation if someone has an accident on their property, or sues following a car accident. Speak with an insurance advisor annually to maintain appropriate coverage. Review the basics at http://www.bills.com/insurance/.
5. Consider a home equity line of credit. Some advisors recommend opening a home equity line of credit during a stable situation to be prepared for an emergency. For this purpose, look for a line of credit that can be left open with no balance. This can be a good option for those who have a lot of home equity (and have paid off a significant portion of the mortgage) and who do not have great amounts of other debt. However, see tip #6.
6. Don't risk a home. Always pay the mortgage before paying any other bill. Do not borrow excessively with home equity lines. "If you lose your home in an emergency, you'll be stuck with no income, no residence, possibly no equity -- and all of your old bills," Housser said. "Whatever you do, protect your home."

"Take the time today to sit down, with your spouse or partner if you have one, and review your financial situation," Housser suggested. "Determine what you would need in an emergency, and what you would have. Then, lay the groundwork to make an emergency fund a reality. It's one of the most basic aspects of financial planning -- and one of the most necessary."

Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and save money by choosing the best-value products and services. Since 2002, Bills.com and its partner company, Freedom Financial Network, have served more than 10,000 customers nationwide while managing more than $350 million in consumer debt. The company's co-founders and CEOs, Andrew Housser and Brad Stroh, were named Northern California finalists in Ernst & Young's 2006 Entrepreneur of the Year Awards.