Financial experts agree that one of the first steps to financial stability is to have an emergency fund. A family without an emergency fund is at risk to events that could damage their credit worthiness, debt status, and even family relations.

The recommended emergency fund, equal in size to three-to-six months of expenses, is daunting to many people. How can I save $10,000 or more for an emergency fund when I can barely pay my bills? The answer is that a fully funded emergency fund is a long-term goal. Put that aside for now and make it your number one priority to set aside a beginners emergency fund. This will be $500-$2,000 depending on your income. If you make more than $100,000 a year, $2,000 is a good start. Someone earning less than $20,000 a year should target a $500 emergency fund. People who make between these amounts can make do with $1,000 for starters.

Here is where your emergency fund will come in handy:

1. Car Repairs. In a perfect world, everyone would have a car repair fund and a car replacement fund. In reality, most people dont have the extra income to set specific money aside to fix cars. That is why an emergency fund is important. Car repairs can often exceed a few hundred dollars, too much to cover from the next paycheck. Without an emergency fund, you might have to pay for it by going into debt.
2. Home Repairs. Nobody plans to call on a plumber to fix a clogged train or to deal with a broken water heater. Yet, stuff around the home is going to wear out or one of your kids may break a window. Your emergency fund lets you fix things when needed without using debt.
3. Medical Expenses. The best way to pay for medical expenses is with funds in a Flexible Spending Account (FSA) or Health Savings Account (HSA) set up through your employer. However, not everyone has this option, and when your child has an accident you need to obtain medical attention. Having an emergency fund makes is possible to pay for medical services without taking on debt.
4. Food Storage. One of the purposes of having an emergency fund is to be able to put food on the table if you become unemployed. If you buy extra canned goods and other storable goods when they are on sale, you can fall back on this food source if you are between jobs. It lets you stretch your money farther if you can buy food when the cost is low.
5. Lower Insurance Premiums. An emergency fund can actually save you money on your auto and home insurance. Premiums are higher with lower deductibles, but if you have an emergency fund to cover the deductible portion of a claim you can choose higher deductibles and lower your premiums and save the money.

Here is what to avoid regarding your emergency fund:

1. Dont keep it all at home. The safest place to keep your emergency fund is in the bank. Even in major catastrophes like Hurricane Katrina, ATM networks were back and operating in just a few days. Keep a roll of $1 bills at home if you must, but the rest belongs in the bank where a theft or fire will not wipe it out.
2. Dont make it easy to spend. Emergency funds are for emergencies, so keeping it in your checking account where it can be easily accessed is a bad idea. Keep it in a savings account. If you have a history of spending money that is within easy reach, put your emergency fund in a different bank without a checking account. It will make it extra hard for you to take out the money when you shouldnt.
3. Dont create fake emergencies. A big balance of money, sitting unused, can be tempting if you come across a super deal. What if you can get that super-flat-screen TV at 70 percent off? What if there is a great travel deal and you can get a two-for-one flight? If something is not broke or someone is not bleeding, keep your hands off your emergency fund.

The list of things you can do to improve your financial situation is as long as your arm. It can be easy to be overwhelmed and not take any action. After all, how do you pay off debts, save for retirement, set aside a down payment for a house, and fund your childs college all at the same time? Those are all important, but they all are secondary to an emergency fund. So until you have your starter emergency fund set up, stop worrying about all these other things just work on saving up your emergency fund.

An emergency fund is the foundation of your financial wellbeing. Set it up and keep it funded and you will avoid many of the headaches that happen to people without one.

The information presented in this article is presented for general informational purposes only and does not constitute tax, legal, investment or business advice.