Editors' pick: Originally published June 8.
Americans aren't big on emergency savings funds: only four in ten U.S. adults have one, according to a 2015 study by Bankrate.
But if your Jeep Cherokee needs $1,000 worth of transmission work, or you need to cover a $6,500 health care plan deductible in a medical emergency, a household rainy day fund may be one of the best insurance policies you'll ever own.
Before we get on the path to starting a savings fund quickly and effectively, understand first that an emergency fund and a rainy day fund are two different animals. A rainy day fund is smaller in size than an emergency fund: whereas $1,000 might form a good rainy fund, a decent-sized emergency fund should have between $3,000 and $10,000 in cash.
The key to building both, however, is similar - just get started.
"Jump start an emergency fund with a windfall like a tax refund, profit sharing check, stock sale, or an inheritance," says Sharon Marchisello, author of the book Live Cheaply, Be Happy, Grow Wealthy.
"Start out gradually and ASAP, putting aside as much as you can on a regular basis," she adds. "You'll be surprised how fast it will grow if it's left alone."
Marchisello advises putting the money in a stable, liquid investment, such as a savings or money market account, so you don't risk losing value or paying a penalty when and if you have to withdraw the cash. "Avoid depleting the fund for non-emergency expenditures," she says. "And don't substitute an increased credit line or home equity loan for having an actual emergency fund."
Leveraging technology can help you build a better, faster and stronger emergency fund.
"The best way to build an emergency fund is through any type of automated offering," states Sally Outlaw, a registered investment advisor based in Jupiter, Fla. "That's particularly effective if the deposit is via smaller contributions as the saver is less likely to feel the impact of the withdrawals on their daily lives."
Use an automated savings tools like Bank of America's "Keep the Change" program, where everyday purchases are rounded up to the next whole dollar and tucked into savings, or other "spare change" programs like Join Worthy, the idea is to make the savings process as painless as possible. "Saving and investing for the future seems to be more effective when the saver's behavior doesn't have to change," Outlaw says. "You don't have to consciously make changes in their lives or spending habits to meet their goals to build a strong emergency fund."
Holly Perez, a savings expert at Mint.com, advises paying yourself first to build a sustainable household emergency fund. "Set up a bill reminder to put money into your emergency fund and invest in yourself," she notes. "While those who can't make ends meet might find this difficult, start small. Don't bite off more than you can chew. This can be as simple as putting change in a jar, and setting aside $20 a week."
Reprioritizing your spending is another good savings move. "Take a look at discretionary expenses like subscriptions, gym memberships and shopping," Perez adds. "Identify areas where you can cut back. Do you need that monthly subscription service? Do you need to buy clothes at full price? Once you've identified where you can cut back, put that savings toward an emergency fund."
Buy some time so your emergency fund can build momentum by getting ahead of potential problems. "Sometimes -- not all -- emergencies can be avoided," Perez says. "Practice preventative maintenance to reduce the risk of some emergencies. Getting physicals and maintaining a healthy lifestyle can help reduce medical issues, and taking care of your car and following the service schedule can help prevent unnecessary breakdowns. Make sure you stay current on home repairs to avoid that leaky roof, too."
To build the best emergency fund, get as creative as possible, experts say.
"For sources of cash to boost your emergency fund, look for things around your house that you're not using and can sell online, at a consignment store or at a garage sale," says Cameron Huddleston, personal finance expert at GOBankingRates.com. "For example, if you have an old video game console or cell phone collecting dust, you can easily get cash for it by selling it to a site such as Gazelle.com or uSell.com."
If you have a high-deductible health insurance plan and your employer offers you access to a health savings account (HSA), take advantage of it, adds Huddleston. "An HSA is a great emergency fund, of sorts, for health-care costs," he says. "Contributions typically come out of your paycheck before taxes -- which means you're lowering your taxable income. And the money can be used tax-free to pay for out-of-pocket medical costs."
One you have accumulated a decent-sized emergency fund, don't take the experience for granted.
"One of the things emergency savers should avoid is resting on their laurels," says David Reiss, a law professor at Brooklyn Law School. "If you have an emergency and you deal with that rusted-out boiler or that leaky roof without having to go to your credit cards, you feel like a genius. But then you have to start saving immediately for the next emergency, because as every experienced homeowner knows, another problem is just waiting to happen."
Building the perfect emergency fund calls one part diligence, one part creativity, and one part patience. Put all three together and sleep easier at night as your safety net fund grows accordingly.