Suze Orman: How To Build a 3-Month Emergency Savings

We’ve all experienced the unexpected — a parking ticket, a fender bender, or an unforeseen medical bill. Mishaps will happen, so it’s always recommended to stow away a chunk of money . When things come out of left field, and they will because that’s life, you want to be prepared, but many Americans aren’t ready.

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According to a recent Empower study , “more than 1 in 5 (21%) Americans have no emergency savings — money set aside for unexpected financial events such as job loss, home and car repairs, and medical bills.” In addition, “Nearly 2 in 5 (37%) couldn’t afford an emergency expense over $400.” per the data.

It’s typically advised to have at least three to six months saved that will cover all of the household and living expenses. Knowing where to start can be overwhelming, but Suze Orman , a finance expert and #1 New York Times Bestselling author, outlined in detail how to build a three-month savings. “I think making three months of living costs your savings goal is beyond fantastic,” she wrote in a blog post . “It will be such a great step forward in financial security, and now we know there’s a pretty good chance it may also help you manage your financial stress.”

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Know How Much Your Expenses Are

The first step to saving is knowing how much you need to save. Everyone’s monthly expenses are different, so to understand how much will cover you in an emergency, figure out how much you pay for bills.

“No guessing,” Orman stated. “Or ballparking. Please find some quiet time to tally up not just the rent/mortgage but the food and utilities. And calculate the monthly cost of all your essential insurance premiums: health, home/renters, car.”

Once you determine your monthly expenses, multiply that number by three. “That’s your savings goal,” Orman explained. “Next, divide that sum by 12,” she continued. “For instance, if three months of living costs is $7,500, you would need to save $625 a month to have your 3-month emergency savings within one year.”

She noted if that’s not doable, “divide by 18 to see what you would need to save to meet your goal within a year and a half.”

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Set Up Savings Account

Set up a savings account once you’ve figured out how much you need to save to have a three-month emergency fund. “I want you to commit to an automatic deposit into a federally insured bank or credit union savings account,” Orman wrote. “The monthly (or biweekly, or weekly) transfer should be absolutely free to move it from a current account into your new savings account.”

Be sure to find a savings account that doesn’t charge a fee for a minimum balance.

Stay on Top of Your Savings

The third and final step to building a three-month emergency fund is to check your savings account once a month.

“Give yourself credit for what you have already achieved: every month your account grows, it builds financial security,” Orman said. “And that’s going to help make life less stressful.”

This article originally appeared on GOBankingRates.com : Suze Orman: How To Build a 3-Month Emergency Savings