How to Build an Emergency Fund: Tips & Advice for Savers


If you’ve ever been in a financial emergency and needed money in a pinch, then you already know the value that an emergency fund brings.

But even if you’ve never faced a true emergency in the past, you know that it’s only a matter of time before one eventually comes your way. It typically isn’t a question of if; it’s a question of when. Having emergency savings set aside ahead of time can help you survive the emergency that eventually comes.

Here, we explore everything you need to know about emergency funds: What they are, why they’re important, where you should keep them, how much you should save, and how to build one to protect yourself and your family.

What is an emergency fund?
Why do you need an emergency fund?
How much money should be in your emergency fund?
Where should you keep your emergency savings?
How to build your emergency fund

What is an emergency fund?

An emergency fund is a savings or bank account that holds money specifically set aside to cover unexpected emergency expenses.

What counts as an emergency expense? Generally speaking, an emergency expense is something that needs to be paid for immediately. This could be anything from:

  • Medical expenses, like a trip to the emergency room, walk-in clinic, or vet
  • Critical car repairs, like needing new brakes or tires, or fixing an engine
  • Critical home repairs, like fixing a leaky roof or frozen water pipe
  • Replacing major appliances, like a refrigerator, stove, or washer and dryer
  • Emergency travel expenses, like flights and lodging to visit a sick relative or attend a surprise funeral
  • Unexpected unemployment

And what doesn’t count as an emergency? Essentially, anything that can be called a “want” instead of a “need” would not count as an emergency, and is something that you should not use your emergency fund to pay for.

For example, buying a new car when your old one still runs, redoing your kitchen cabinets, or purchasing a new stove simply because you want one would all not count as emergencies. You should save for these purchases separately and leave your emergency fund alone so that you can rely on it when a real emergency eventually strikes.

Why do you need an emergency fund?

Life is unpredictable. You need an emergency fund so that you can pay for the unexpected emergency expenses that life is inevitably going to throw at you. Think about it like this: If you didn’t have an emergency fund, how would you pay for an expense that you weren’t already expecting?

If you’re like most Americans, your options would be limited. If you were lucky, you might be able to turn to friends or family to borrow some money until you were back on your feet, but this often puts an awkward strain on relationships. If you were less lucky, you’d be forced to turn to expensive personal loans, credit cards, or payday loans to keep yourself afloat. And because each of these come with high interest rates that you’d need to pay back on top of the principal, you’d only end up even worse off than when you started.

But emergency funds don’t just prevent you from falling into a cycle of unrelenting debt. They also bring financial peace of mind that most Americans lack—a peace of mind that says, even if life throws its absolute worst at you, you’re good. You’ve prepared.

How much money should be in your emergency fund?

Most financial experts recommend that you have between three and six months’ worth of expenses in your emergency fund. Having this much set aside means that you’ll be able to cover most unexpected expenses you might encounter, while also safeguarding you in the event you lose your job or source of income.

That being said, the exact amount that you should have saved in your emergency fund will depend on your financial situation.

Not sure how much you should be saving? Download our free Emergency Fund Calculator!

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For some people, who can easily find a new job if they lose their current one, having three months’ worth of expenses might be enough. For others, especially those in more competitive fields, six months’ worth of expenses might be ideal. And for others, like those who are self-employed or who work in extremely volatile industries, having nine to twelve months’ worth of expenses set aside might be best.

Not sure how long your emergency fund needs to last, or which expenses you should account for? Check out this guide, which will help you determine exactly how much you should be saving.

Once you know how long your emergency fund needs to last, all you need to do is list out your essential monthly expenses, add them up, and multiply them by how many months you want your fund to cover (three, six, nine, twelve, etc.). Alternatively, our free emergency fund calculator will do the math for you.

Where should you keep your emergency savings?

An emergency fund has a very specific purpose: To protect you in case of a financial emergency. With that in mind, there are a few rules you should follow when choosing where to keep your emergency savings:

  • An emergency fund should be separate from your checking account or other savings, so that you aren’t tempted to use it for non-emergency expenses
  • An emergency fund should be liquid (i.e., cash) so that you can access it quickly when you need it
  • An emergency fund shouldn’t be invested in a volatile asset class like stocks, or else you risk your money not being there when you need it most (if you need to tap into it during a recession, for example)
  • An emergency fund should maximize growth without taking on risk

A high-yield savings account or money market account are two great options for where you can keep your emergency savings. These accounts are FDIC-insured up to $250,000, so you can be sure that your money is going to be there when you need it, and the money is easily accessible in the event of an emergency. And depending on exactly which bank you choose to keep your money with, you might be able to earn upwards of 2% interest, which is more than 10x the national average. This can help you maximize your money’s growth so you can fight off the negative effects of inflation, without needing to put your money into the stock or bond market.

Still not sure what’s best for you? Read this article for more information about where you should put your emergency fund.

How to Build an Emergency Fund

Below is a step-by-step guide that you can use to build your emergency fund from scratch so that you can cover any surprise that life throws at you.

1. Start small.

Even if your ultimate goal is to have an emergency fund large enough to cover three to six months’ worth of expenses, choosing a goal that is too large can be intimidating if you’re starting with no emergency savings at all. To prevent yourself from aiming too high and losing motivation, start with a smaller, more realistic goal.

$250–$500 is a great amount to start with. It’ll help you cover a lot of smaller financial emergencies, and put you on surer financial footing than the 44% of Americans who currently can’t afford an unexpected $400 expense. Plus, depending on your budget, you might be able to set this aside over the course of a few weeks to a few months, providing you with a quick win and psychological boost that you can use to aim higher and higher.

2. Find places to save in your budget.

If you’ve never sat down and evaluated your spending habits, now is the time to start. You might be surprised at how much money you’re wasting—money that you can use to build your emergency fund. For example, you might:

  • Cancel unused subscriptions or memberships, like those magazines you barely flip through and the gym you never go to
  • Negotiate down other expenses, including everything from your cable and phone bill, utilities, and even your credit card interest
  • Cut down on luxuries like restaurant meals, your daily coffee, or other entertainment
  • Join the sharing economy by carpooling or borrowing items from your friends and family instead of buying
  • Make major lifestyle changes, like moving to a cheaper apartment, home, or city, if you realize that you are paying way too much

In addition to cutting back your spending, you’ve got to actually transfer the money you save into your emergency fund. Otherwise, it will sit in your checking account, where you’ll eventually succumb to temptation and spend it.

Check out this article for some more ideas and strategies that you can use to turbocharge your emergency savings and build your emergency fund even faster.

3. Make saving automatic.

If you’re serious about building your emergency fund, you should consider making it automatic. Doing so means that you don’t need to actively think about saving money—and the less you have to think about something, the easier it will be to do.

To automate your saving, figure out how much you need to save each month to hit your goal. Then, divide that by the number of times that you get paid each month, and set up an automatic transfer so that, each time you get paid, money is automatically added to your savings account.

For example, if you want to save $50 each month and you get paid biweekly, you would set up an automatic transfer of $25 from your checking account to your emergency fund each payday.

4. Save the excess.

Sometimes, if we’re lucky, we get to the end of the month and realize that there’s still some money that we didn’t spend. Maybe you used more groceries from your freezer and pantry, so you didn’t need to buy as many groceries. Maybe you showered at the gym more often and shrunk your water bill. Maybe you just didn’t dive as much as you anticipated, and saved on gas. In any case, you have extra money burning a hole in your wallet.

Instead of using that money for extra guac the next time you go to Chipotle, transfer it into your emergency fund where it can do you some real good.

5. Dedicate raises to your emergency fund.

If you get a raise or other increase to your salary, dedicating all or even a portion of that extra money towards building your emergency fund can really turbocharge your saving. Even as little as $25 per week could mean $1,300 more in your emergency fund after a year.

6. Put other windfalls to good use.

On a similar note, if yourself the recipient of an unexpected source of cash—for example, a quarterly or yearly bonus, an inheritance, insurance settlement, tax refund, lottery payout, or anything else—consider using the money (or a portion of it) to shore up your emergency fund. Though it may not be as much fun as going on vacation or buying a new car, having that money there when you need it will give you peace of mind worth far more.

7. Consider a second job or part-time gig.

If you’ve got the bandwidth, taking on a second job or special project for supplemental income can help you hit your emergency saving goal a lot faster. Even if you don’t want a second job in the long-term, working one for just a few months might be all it takes to set yourself up for success.

8. Aim higher.

After you’ve saved up your first $500, you should set yourself another target to aim for. $1,000–$2,000 is a great next step, and will help you pay for most larger emergency expenses that might come your way. Repeat the steps above until you’ve reached this larger goal.

9. Think long term.

Once you have $1,000–$2,000 set aside for emergencies, you know that you have enough for most emergency expenses. Now, it’s time to start thinking about your long-term emergency fund, which you can rely on in case you ever lose your job. To do this, you’ll need to know two things: How much money you spend each month on essentials, and how many months you think your emergency fund should last you.

To get the first number, just list out your essential monthly expenses (you can find a full list of those here). Then determine how many months’ worth of these expenses you need to set aside so that you feel comfortable in your financial situation. Multiply those numbers together to figure out the total amount of money that you need in savings.

Not sure how much you should be saving? Download our free Emergency Fund Calculator!

Download Now

This number is likely to be pretty high—after all, we’re talking about months’ worth of expenses. So make sure you break this goal down into smaller, more manageable milestones. Use a calculator like this one to figure out how much you should be saving each month to hit your goal in whatever timeframe makes the most sense for you.

10. Revisit your goals.

Once you’ve hit your goal, it’s important to revisit your emergency fund from time to time to make sure that it is still at an adequate level. Expenses are always on the rise, so your emergency fund needs to keep pace with inflation or you risk not really having as much money as you thought when you eventually need to tap your fund.

Every six months to a year would be a good time to check in, as would any other time your financial situation changes (for example, if you move to a costlier/cheaper area, have a child, buy a house, change jobs, etc.). Also remember that if you ever need to tap your funds to cover an emergency, that money should be replaced as soon as possible.

11. Don’t forget your other goals.

While building an emergency fund is important, it’s also important that you don’t overlook other important financial goals like paying down debt, investing for retirement, and saving for other milestones. Instead of thinking that you need to pursue one goal before moving onto the next, it’s probably wisest to pursue multiple financial goals at once.

About Tim Stobierski

Tim Stobierski is the founding editor of Student Debt Warriors. A freelance writer and editor with a passion for teaching people about all things personal finance, his goal is to help parents and students tackle their student loan problems so that they can live happier, healthier lives. Tim's writing has appeared in a number of publications, including The Huffington Post, The Hartford Courant, Grow Magazine, and others. His first book of poetry, "Chronicles of a Bee Whisperer," was published in 2012 by River Otter Press.

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