Creating an Emergency Fund

Here are five steps to take in order to build an emergency fund:

1. Start now: The most important step is to just begin. Even if money is tight, make building an emergency fund a priority and start putting money aside -- no matter how little -- to build the fund.

2. Separate the account: When you begin to build the emergency fund, make sure to place it in an account by itself and not mix it with your other money. Mixing it with other funds will greatly increase the chance you spend it on other things. You want it to be in a liquid account where you can access the money in a relatively short period of time, but also someplace where it's not easy to see on a daily basis so you aren't tempted to use it for something other than its original purpose.

This makes opening an online bank account specifically for an emergency fund a good idea. The funds will earn a decent interest rate and can be accessed quickly, and an account can be opened with as little as $1 -- and won't require a minimum balance, which is important if the funds need to be withdrawn.

3. Make it automatic: Once you have an account set up for your emergency fund, set a specific amount to be placed into the fund on a monthly basis. If you use direct deposit for your paycheck, set it up so that a specific amount goes to the emergency fund directly after each deposit. This ensures that the fund grows and when you make it automatic, you won't miss the money nearly as much as if you tried to come up with it at the end of the month.