How Can You Start an Emergency Fund?

You’ve likely experienced unexpected financial emergencies such as car repairs, medical bills, or loss of income. These unplanned expenses often occur at the worst times.

Having an emergency fund helps protect your financial stability when surprise expenses occur. Setting aside even a small amount of money enables you to get back on track with reaching your financial goals.

What Is an Emergency Fund?

An emergency fund is a savings account specifically for unplanned expenses. This account can be used to cover car or home repairs, medical bills, a loss of income, and other unexpected events.

Why Do You Need an Emergency Fund?

An emergency fund helps pay for unplanned bills without adding to your debt load. Without these savings, you might rely on credit cards or loans that can be difficult to pay off, or pull from your retirement savings, which can require working longer to reach your financial goals.

How Much Should Be in Your Emergency Fund?

The amount that should be in your emergency fund depends on your circumstances. Experts typically recommend at least three to six months’ worth of expenses if you are single and have no dependents. If you are married and have children, consider saving six to twelve months’ worth of expenses.

How Can You Build Your Emergency Fund?

The following strategies can help you build your emergency fund:

Create a Savings Habit

Consistently putting away money helps you reach your savings goal:

1. Set a savings goal. Decide how much to set aside for emergencies.

2. Develop a system for making constant contributions. Automatic recurring transfers from your paycheck to your savings account simplify the process.

3. Regularly monitor your progress. Automatic notifications of your contributions let you see your hard work pay off.

4. Celebrate your successes. Recognize your accomplishments by providing yourself with inexpensive rewards.

Manage Your Cash Flow

Monitor your income, expenses, and spending:

• More money needs to be brought in than goes out.

• If your timing is off, you might be short at the end of the week or month.

• If you track your cash flow, you can adjust your saving and spending habits.

Take Advantage of One-Time Savings Opportunities

Any cash received as holiday or birthday gifts, as well as bonuses, tax refunds, and pay increases, can be added to your emergency fund. Saving some or all of these funds can help you attain your savings goal.

Where Should You Keep Your Emergency Fund?

Your emergency fund account should be safe, accessible, and used only for surprise expenses. Consider the following locations for setting up an account:

• Bank or credit union: You might open a separate savings account at the financial institution that holds your checking account.

• Prepaid card: You could keep additional funds on a card you can load money onto.

When Should You Use Your Emergency Fund?

Clarify what an unplanned expense is, such as a medical bill not covered by insurance. Include what an unplanned expense is NOT, such as a spontaneous weekend getaway with friends.

Using the money for true financial emergencies helps avoid using a credit card or a loan to pay for unexpected expenses, which can incur fees and interest. Be sure to replace the funds as soon as possible to prepare for your next unplanned expense.

*This information is for educational purposes only.

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