Why you need an emergency fund and tips on how to get one started

PHILADELPHIA (WPVI) -- From inflation to unemployment to worries about being laid up by an illness, having an emergency fund can help smooth out life's financial hits.

And starting one might not be as tough as it seems.

If you're lucky, things are going well right now - you have a steady paycheck, you pay your bills on time and you might even have a little extra money left over. But what if something unexpected happens?

"We've all experienced unexpected financial emergencies, a major home repair, medical bills or even loss of income," said Lisa Gill.

Gill writes about personal finance for Consumer Reports.

"Having a rainy-day fund to cover these types of unplanned expenses can protect you from major debt which can easily turn into a financial crisis," she said.

Financial Planner Nestor Vargas says that putting aside enough to cover three to six months of essential expenses is a good rule of thumb.

"Essential expenses are housing, food, transportation, debts repayments and so what you want to do is you want to sit down and figure out how much that is on a monthly basis, multiply that times three or six to come up with the actual number you need to save for your emergency fund," he suggests.

Once you determine your savings target, don't let that number daunt you.

"It is definitely important to start saving as much as you can or as little as you can, if it's $5, $10 a month, you will be surprised how quickly that adds up," said Vargas.

An online savings calculator can show how much you'll need to set aside each month to reach your goal and how quickly that money will grow.

"Consumer Reports suggests putting money into a high-yield savings bank or no penalty certificate of deposit. Many of those accounts now have interest rates over 4%," said Gill.

And make saving even easier by setting automatic deposits or transfers from your checking account to your emergency fund. It will keep your contributions on track and secure until you need them.

While building emergency savings should be a priority, you may have other urgent financial obligations, such as high-interest credit card debt. If that's the case, paying down that debt should become the priority.

If you have low interest debt, you could strike a balance, funneling some of your savings toward paying your debt, with the rest toward your emergency fund.