Break in case of emergency

How to set up an “oh crap” fund

The emergency fund is a bust.

Millions of Americans don’t have one, and some of those who do resist tapping into what they’ve saved. NerdWallet columnist and certified financial planner Liz Weston suggests an alternative: the “oh crap!” fund.

It is designed to be spent, not hoarded. These accounts are for those moments that elicit the same reaction, such as the no-parking sign you didn’t see or the smart phone dropped in a toilet. A relatively small amount in such a fund can keep people from turning to expensive credit cards or payday loans.

Here’s how to start:

Set up a dedicated

account. Consider using an online bank, since most don’t have minimum balance requirements or account fees and they’ll let you name the account almost anything you’d like. And set a modest goal to get it started, even just a few hundred dollars.

“The power of just a few hundred dollars of savings can really help reduce the use of short-term, high-cost lending,” says John Thompson, chief program officer for the Center for Financial Services Innovation, a nonprofit that promotes financial health.

Automate it, if you can. Those with regular paychecks and bank accounts can set up automatic transfers, so $10 or $20 or whatever amount you like gets swept into a savings account each pay period. Or you can use technology that automatically rounds up your purchases to the nearest dollar and deposits the money in savings. Bank of America’s Keep the Change debit card and Chime, a mobile bank account, both offer this option.

If you can’t automate,

make a rule. Decide to put aside a set dollar amount or percentage from every check or other income you receive. Examples: “I’ll save $10 from every paycheck and 10 percent of any windfalls.”

Don’t stop. Once you’re in the habit of saving, keep going. Your next goal can be $2,000, which is the median cost of the largest financial shock experienced by households studied by the Pew Charitable Trusts. After that, you can shoot for the traditional emergency fund recommendation of building a fund equal to three months’ worth of expenses.

Even as you do, though, you may still want to keep a separate fund for those everyday mishaps. Because crap happens.