These 3 Easy Steps Can Get You Started on an Emergency Fund, According to Suze Orman

Everyone needs an emergency fund . Some could use a larger emergency fund, others can get by with a modest one, but unexpected costs and crises strike all the time.

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Last year it was a job loss, this year it’s a family health crisis, next year it’ll be something else. If you don’t want to live on the edge of financial ruin and debt, you need an emergency fund.

But if you’ve never saved an emergency fund, how do you get started?

Personal finance expert Suze Orman offered a simple three-step plan that anyone can follow to start and reach their emergency fund goal quickly.

Money mistakes the super wealthy never make - that you might be doing now.

1. Get Clear on Your Mandatory Living Expenses

What bills do you need to pay to survive each month?

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These include all housing-related costs, transportation, food, and insurance. If you own your home, housing includes not just your principal and interest payment, but also property taxes, homeowners insurance, utility bills, and average repair and maintenance costs.

Likewise, transportation includes not just your car payment, but also auto insurance, average maintenance costs, and gas. Restaurant and delivery meals count as entertainment, so only include the cost of groceries to feed your family for a month. And make sure you include health insurance premiums and any other mandatory insurance bills, as a monthly cost.

Tally these up — these make up your monthly necessities. You can skip meals out at restaurants and other entertainment costs, but you can’t skip your rent or insurance payments.

2. Multiply Your Mandatory Monthly Spending by 3

Sure, some people with inconsistent income could probably use an emergency fund with more than three months’ living expenses, but three months makes a great “standard-issue” emergency fund.

If your mandatory living expenses come to $3,000 per month, that makes your target emergency fund $9,000.

Not exactly advanced calculus — but the harder part is execution.

3. Budget to Save Your Emergency Fund Within 1 Year

You have your savings target, now divide that by 12 to come up with the monthly amount you need to save if you want to reach your emergency fund goal within one year. In the example above, that comes to $750 each month.

If you’re used to spending most of each paycheck, that might feel uncomfortable. Find ways to curb your spending and work through the discomfort, knowing that you’ll come out the other side able to weather the inevitable financial storms that rock your wallet.

And if the monthly savings demand turns out to be too great, scale it back. Calculate what you’d need to save to reach your target within 18 months ($500 in this example). Still busting your budget? Divide by 24 months instead ($375), and hit your target within two years.

The sooner you build an emergency fund, the sooner you can move on to more fun financial goals. You can start saving for a down payment on a home, or for a trip to Europe, or early retirement.

But financial success starts with financial security — and that requires an emergency fund.

This article originally appeared on GOBankingRates.com : These 3 Easy Steps Can Get You Started on an Emergency Fund, According to Suze Orman