How to Start and Build an Emergency Fund

Unexpected expenses are bound to happen. Creating an emergency fund is an excellent way to ensure your financial security doesn’t suffer when a large medical expense occurs or layoffs hit your company. It can also be essential savings for necessary projects and repairs. When your emergency fund is prioritized as one of your top financial goals, you can be financially better prepared.

Getting started on your savings can be a rewarding process when you know how much you should save, where to keep your emergency fund and when to use it. Learning how to create this type of financial security can maximize the benefits it offers.

An emergency fund is money a person sets aside to cover possible unexpected expenses or emergencies. Typically, these savings are for essential expenses such as food, housing, utilities, transportation and health care. The money can also be a financial cushion for job loss.

Emergency funds are typically cash or other liquid assets that can convert into cash, such as money market accounts, short-term bonds and money market accounts.

Emergencies can lead to unexpected expenses. An emergency fund can help you maintain financial security by providing money to cover huge costs.

Unexpected expenses may vary. While some may only need a few hundred bucks for car or home repairs, others may require a huge amount for medical bills, a family crisis or even unemployment. It’s typically best to prepare for any possible financial blow when building an emergency fund.

The amount necessary to have a sufficient emergency fund may vary per person. Generally, you need to save enough to cover your basic living expenses should you lose your source of income or if it gets reduced. As a rule of thumb, you may need to set aside three to six months of living expenses. You should also consider your income, essential expenses and current debt.

Creating an emergency fund can be a stress-free process when you know how to start saving money. Contrary to some beliefs, you don’t need to start with a large amount. The important part is that you’re starting somewhere.

There are various strategies to build an emergency fund quickly. You can use all of them or choose which ones work best based on your situation.

Approximately 125 million or 63% of Americans live paycheck to paycheck. This doesn’t only include low-income individuals. Around 40% of U.S. workers earning more than $100,000 and 53% of those earning between $50,000–100,000 said they live paycheck to paycheck.

Although this situation makes it harder to save money, being strategic with your savings can help you build an emergency fund.

An emergency fund should be easily accessible. At the same time, it must be safe.

The best choice may vary depending on your needs and preference. There are also factors to consider when looking for the best savings accounts. The most important are the minimum deposit requirement and annual percentage yield (APY).

Comparing your options can help you decide which savings account is best for your needs. Below are some savings accounts that offer good APY and require a minimal or no deposit amount.

Before using your savings, ensure you’ve defined what constitutes a legit emergency. This can help you determine when it’s the right time to tap into your emergency fund. You would typically only use your emergency savings for unexpected, urgent or necessary expenses, such as living expenses after a job loss, medical emergencies and significant home or auto repairs.

If you ever encounter a situation requiring you to use your emergency fund, replenish it as soon as possible to ensure you have a safety net.

Many resources are available to help you manage financial emergencies. MoneyGeek compiled a list of some valuable resources and tools below.

Budgeting and Saving

• 52-Week Challenge: Create a money-saving habit by taking the 52-week money challenge. This is a great option for individuals who need help building the habit of saving.
• America Saves Pledge: Pledge yourself to stay motivated in building an emergency fund. Create a simple plan that includes your purpose and savings goal.
• CFPB Spending Tracker: Keep track of your spending and be better at budgeting using the Consumer Financial Protection Bureau’s spending tracker.
• Simplifi: Get insights on your spending, set saving goals and track your finances using Simplifi by Quicken.
• SMART Goals Tool: Start your journey toward financial security with the help of the Consumer Financial Protection Bureau’s (CFPB) tool. Set financial goals based on your motivations.
• Downloadable Apps: Take control of your finances with the help of budgeting and money-saving apps like Mint, Honeydue, Goodbudget and YNAB.

Financial Support

• Benefits.gov: Use the search tool or sort through the directory to find financial assistance programs available in your state.
• Foundation for Appropriate and Immediate Temporary Help: Get temporary, short-term or long-term assistance to address financial emergencies.
• Federal Trade Commission: Get tips you can use when you’re having trouble juggling your financial responsibilities, including bills and debt.
• Low-Income Home Energy Assistance Program: If you have a hard time paying utility bills, consider applying to LIHEAP to get assistance for energy costs.
• Supplemental Security Income (SSI) Program: Find out more about the SSI program and how it works. Determine if you’re eligible to receive benefits.
• USA.gov: Browse through government benefits for individuals and families in crisis.