How to Start and Build an Emergency Fund

Emergency funds aren’t fun. Starting one up may pull money away from more pleasurable endeavors. But if you don’t have one, you may find yourself in a pickle sooner than you think. According to CNBC, 54 million Americans have no emergency fund of any kind. Don’t fall into that trap. It’s better to save today than to have to take out a loan with a high interest rate tomorrow.

What is an Emergency Fund?

An emergency fund is exactly what it sounds like: money you use in case of an emergency. Whether you have one month of savings or a year of bills in an account set aside for emergencies, you’re doing better than most of the population. But how much should you save?

It depends on your circumstances. If you’re paying back high-interest debt, your emergency fund could potentially be better off lower so that you’re using more of your money to pay down the debt faster. On the other hand, if you have no debt or only low-interest date, having at least six months of bills in an account provides an incredible safety net. According to Vanguard, experts say you should have from three to six months of expenses in an emergency fund.

Start small. If you can direct 10 percent of your income into a separate account for emergencies, start with your next paycheck. If you can only save $10 per week, that’s okay too. It’s a matter of doing what you can with the income you have. Even small amounts will add up over time.

What Does an Emergency Fund Do?

An emergency fund is there when times get tough. Consider these scenarios:

You lose your job and find yourself with bills and no income. If you have six months of savings put aside, that’s six months to find a job and start making money before you have to deal with losing your home, not meeting your obligations, or other pressing issues.

You’re in a car accident and you are physically injured. You may have medical expenses or needs that aren’t immediately covered by the driver who hit you. According to Sherwin Arzani, a Los Angeles personal injury attorney, it can take time to gather evidence and recover damages from the at-fault party in an incident. Having an emergency fund can be a buffer between the moment something happens and the moment you’re compensated.

Your hot water heater fails and you’re left with a pricey replacement bill in the middle of the winter. Having an emergency fund can be the difference between a slight annoyance and a real budgeting nightmare.

Ultimately an emergency fund gives you a cushion that you can use to keep you from a hard landing.

How to Save for an Emergency Fund?

Start by sitting down and going over your household income and budget. Don’t leave anything out. Your housing cost, bills, subscriptions, entertainment, personal upkeep, food, insurance, gas, and other expenses must be accounted for.

Once you know how much you’re spending, take stock of how much money you have leftover every month and where it goes. If you’re investing, for example, you might want to invest a little less until you have an emergency fund saved. Investing is an important part of a sound financial strategy, but it can be difficult to quickly liquidate your investments in troubled times.

If you don’t have much money left over at the end of each month, check to see whether you can either cut your expenses or generate additional income. While cutting expenses might be easy, it’s possible that you won’t be willing to part with the things those expenses cover. That’s fine. In that case, look into a second job, selling something you own or create, or another option that will generate enough that you can start saving.

When you know how much you can save and where to take that money from, open an account that is only accessible in an emergency. Put the funds in that account and don’t touch them.

Apps to Help Save for a Rainy Day

If you aren’t sure where to start, consider trying out an app to help you budget and save.


If you don’t feel like you’ve got a handle on your budget, something like Mint can help you see where your income is going, track your habits, and decide what can be allocated each month to an emergency fund. You add each of your accounts so that Mint can track each transaction you make. Mint is available online.


Digit is an app designed to analyze your income and spending habits, and then save money for you. It pulls money directly from your bank account to a Digit account, where it stays until you’re ready to withdrawal. It also offers a 1 percent bonus if you save for three months at a time. Digit is available on iPhone and Android.

Tip Yourself

When you’re done something good or remembered to tackle a tough task, give yourself financial kudos. Tip Yourself is an app that lets you transfer money from your bank account to a tip jar. Once you’re ready to use that money, you can transfer it back to a bank account within three days. You can tip yourself throughout the week, then transfer that money to an emergency fund account each weekend, for example. Tip Yourself is available on iPhone.

So whatever your current asset and income level, start an emergency fund today. Preparing for the worst is better than facing it without the money you need. Knowing you have an emergency fund in reserve can help you navigate tough times without the additional worry of whether you’re financially prepared to deal with it.