Preparing for the unexpected - 3 easy steps

With mortgage expenses, car payments, pet costs and tuition bills, setting up a rainy day fund may not be your top priority. But let's face it - life doesn't always go as planned, and if you're not prepared, an unexpected financial situation - such as a major home repair or a lost job - could land you and your family in financial hot water. Do you know how you would pay for these expenses? A smart place to start is creating an emergency fund.

Experts recommend saving enough money to cover at least three to six months of living expenses, like your mortgage, groceries, and utilities, without resorting to things like high-interest credit cards or borrowing from your 401(k) account. While this may seem difficult, preparing yourself for an unforeseen emergency isn't as daunting as you may think. You can fund it over time, just like your retirement plan or a health care account, so it's there when you need it.

So where's the money going to come from? If you can't afford to start an emergency fund with a lump sum, don't worry. Saving on a regular basis is a way to help you accumulate funds toward your goal. You can even try setting aside your next tax refund or bonus from work as a start. Payroll deduction or monthly withdrawals from your checking account to your emergency fund are other ways to help you save. Since the deposits are made automatically, they can help you get in the habit of saving regularly. Follow these steps to get you started.

1. Create a budget: This will let you get a handle on current spending and expenses, and help you decide how much is right for you to save.

2. Determine where to put the money: You're not doing this to get rich, but to have money when you need it. Choose investment products that won't typically experience big swings based on the market, or bank savings accounts. Try to keep your choices liquid, with low fees. In addition, look for a financial institution that will reward you with bonuses or fee waivers for consolidating your finances with them.

3. Get access when you really need it: You want to choose investments and savings accounts that are easily accessible and do not charge a penalty when you need the money. Make sure to keep your emergency fund separate from your everyday accounts.

Creating an emergency fund can make dealing with unanticipated expenses much easier without sacrificing your long-term financial goals. The process doesn't have to be overwhelming if you remember a few simple steps - create a budget, determine where to put the money and access it only when you really need it.

For more information on emergency funds, visit or speak with a Financial Solutions Adviser at the Merrill Edge Advisory center at (888) MER-EDGE (888-637-3343).