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What will you do when faced with an unexpected expense of, say, $400? A 2016 study from the Federal Reserve found 46% of Americans didn’t have enough funds to cover an unexpected expense of that amount. So, how did they manage to pay for it? Possibly by using their credit card or doing the unthinkable and asking for money from friends and family, which is never fun.

The issue here is that emergencies are bound to happen, as they do to all of us. So, it’s best to be prepared because one of the easiest ways to get into debt unexpectedly, and damage your credit score in the process, is by paying for an emergency car repair or medical expense with plastic — and no plan to pay it off quickly.

If you have been working hard to repair, maintain and improve your credit score, one of the best ways to avoid destroying all your hard work is to have an emergency fund you can use for unexpected expenses. (You can see how your debt may be affecting your credit by viewing two of your credit scores for free on Credit.com.) Remember, it’s best to only use your revolving credit, or credit card, for planned expenses you know you can pay off.

With that in mind, here are three simple steps to get you started on building an emergency fund.

1. Know the Difference Between an Expense & an Emergency

Buying a fancy dress for the big party on Saturday night is not an emergency (even though it feels like one). So make sure you are budgeting correctly and planning for expenses that you know are coming up. For example, you should have your car tuned every year or your home painted every five years. These can be major expenses, but, again, they are not emergencies. So, you need to have a savings plan for them. Imagine how much less stress you will feel if you plan ahead and save accordingly, and when the time comes to paint the house, you can just write the check and be done!

2. Save Up $1,000

Most Americans can’t scrape together enough cash to cover an emergency, however, they all know emergencies will happen, because they have in the past. So, it’s key to have an emergency fund. To start, do everything you can to sell, scrape and cut from your budget so you can save $1,000 as quickly as possible that you keep in a separate account from all of your other funds. Truth be told, most emergencies — not all! — will cost you $1,000 or less, so it’s a good benchmark to work toward. With that $1,000 in the bank, you’ll be surprised how much better you sleep at night.

3. Build a Bigger Cash Cushion

Once you’ve got your $1,000 saved up, just keep going! Keep saving up and adding to your emergency fund until you have three months of your household expenses saved up. Once you’ve done that, make it your goal to save six months’ worth of expenses. Just imagine the relief you’ll feel at not having to worry if something happens to your job, or your child needs special medical care, or you get hurt and can’t work for a few months. You’ll be covered without getting yourself into deep debt or having to beg your friends and family for money.

Remember, start today on building your rainy day fund. Aim to save $1,000 first, then keep going. It’s the smartest, safest thing you can do for your family, your finances and your credit score.

Struggling to get your emergency fund started? There are some places where you may be able to cut back. For instance, here are 50 things you should probably just stop spending money on

Image: Geber86

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