How to build an emergency fund for 2026

Sometimes life doesn’t follow your budget. Unexpected car breakdowns, home repairs, or medical bills can happen without warning. And this is where an emergency fund comes into play. Instead of having to rely on credit cards or possibly derailing your savings goals, an emergency fund can be a cushion when you have a sudden financial expense.

If you’re beginning new financial goals for 2026 or picking up old ones, setting aside money for a cost that you didn’t anticipate is an important step to take when building financial security. We’ll break down how you can work with your budget to create an emergency fund that makes sense for your goals.

Understanding the importance of an emergency fund

Building an emergency fund is one of the most important steps that you can take when it comes to building a better financial future. Still, despite their importance, more than 33% of Americans don’t have an emergency fund, and of those that do, the median amount saved is just $500. For reference, most experts recommend setting aside about six months’ worth of expenses for your emergency fund.

Emergency funds are important for a few reasons. For one, having some cash set aside can be a big help when it comes to getting rid of financial stress. Another is that having money for an emergency can help you avoid taking on expensive debt.

Imagine your car’s engine has some trouble, and it would cost $2,000 to repair. If you have an emergency fund, you can take $2,000 out of your savings and pay for the fix, then replenish the fund over time.

Without an emergency fund, you might instead choose to put the $2,000 on a credit card. If the card has a minimum payment of $50 a month and an APR of 19.99%, you’d wind up making payments for the next 67 months and paying a total of $3,321.85 after interest charges.

In effect, having an emergency fund would save you more than $1,300.

Setting realistic savings goals for 2026

It’s one thing to say that building an emergency fund is important and another thing entirely to actually start saving so you can build one up. It’s important to set achievable goals rather than set ones that will leave you discouraged.

One common method for saving is to follow the 50/30/20 rule. Under this plan, you dedicate 50% of your income to needs, like food and housing, 30% to wants, and 20% to savings. Having a plan for how you’ll save can make actually saving much easier.

To get started, you’ll have to look at your income and your current spending. See how close it aligns with the rule, and see if you can make adjustments to your spending to match the 50/30/20 rule.

Remember that these rules are just rules of thumb, and realistic goals look different for everyone. Save what you’re able to without making yourself deal with serious financial hardship. For example, if you’re living paycheck-to-paycheck, that might mean focusing on saving extra income that comes in, such as financial gifts, tax refunds, or bonuses at work.

Creating a detailed budget plan

Whatever savings plan you choose, a budget is an essential tool to have. Your budget can give you a guideline for how to spend your money effectively and help you achieve your savings goals. These are the key steps for building an effective budget.

Track and calculate expenses

The first step in building a budget is to spend a month or two tracking and calculating your expenses. Pay attention to each dollar you spend and write it down. At the end of the month, you’ll have a good idea of where your money is going.

Try to categorize your spending into fixed and variable expenses. A spreadsheet can help with this.

Fixed expenses are those that don’t change, like rent, student loan payments, and car payments. Variable expenses are those that can change from month to month, like utilities, food, gas, and entertainment.

Variable expenses can be harder to estimate because they change each month, so it may take a few months to get a sense for how much you really spend.

Understand net (after-tax) income

Next, you need to look at your income. Gross income is the amount that you make before any deductions, like taxes, union dues, retirement contributions, or health insurance. For budgeting, the key number is your net income, which is the amount that actually shows up in your checking account after deductions.

Compare net income to monthly expenses

Next, compare your net income to your monthly expenses.

If your net income is more than your expenses, you’re in a good spot. You already have some extra cash that you can start setting aside. If your net income is equal to or less than your expenses, you’ll need to find a way to boost your income or reduce your spending.

For example, you could take on a side hustle or reduce your spending on entertainment or eating out to make your expenses less than your income.

Emergency fund savings tips and strategies

If you’re looking for ways to reduce your spending, there are some places you can try to save money.

For example, reducing your rent may not be a realistic goal, especially if you have a long-term lease. On the other hand, you could decide to dine out less frequently or cancel a streaming service so you can save a few dollars each month. Even clothes, which are a need, present an opportunity for savings if you tend to buy higher-end fashion rather than less costly alternatives.

If you have high-interest credit card debt, you could also consider consolidating it to a lower-cost loan, which can both save you money and reduce your monthly expenses. Even options like coupon clipping, shopping around for deals, or eating before going grocery shopping to reduce impulse buying can have an impact.

When it comes to saving money, the goal isn’t to cut out all of your spending beyond your needs. You can still splurge here and there, but you may just need to cut down a little bit. It’s about finding places where you can reduce your spending in a thoughtful way.

Set a monthly savings goal.

Once you know where you can try to save money, it’s time to set a savings goal based on the surplus left between your monthly income and monthly spending. For example, if you have a $400 gap between your income and spending, you may choose to put $300 of it toward your emergency fund and keep $100 for spending on some wants.

Also, decide how you’ll actually move money to your emergency fund. For example, you could set up automatic transfers from your checking account right after each payday so you don’t feel tempted to overspend after getting paid.

Monitoring and adjusting your savings plan

Budgeting and saving are not one-and-done activities. Once you implement your savings plan, you’ll need to monitor it and adjust it as needed.

For example, you may find that you spend less than expected on some things and have more space in your budget to save. If the costs of something like rent or food rise, you may need to change things to allocate more money toward your needs.

If something about your financial situation changes, such as a promotion or raise at work, you may need to rebuild your budget to account for the higher income.

Remember, saving is a marathon, not a sprint, and building an emergency fund takes time. Every little bit helps when it comes to reaching your financial goals.

Emergency fund options: where to keep your money

Once you’ve actually started setting money aside, you need to figure out where to keep your emergency fund.

A popular option is an online, high-yield savings account. These accounts keep your money relatively easy to access and pay a good rate of interest.

You can also consider a money market account, which offers high interest rates and flexible access to your funds through by allowing you to write checks from your account. However, fees for these accounts can sometimes be high.

A less common option would be a no-penalty Certificate of Deposit. Like traditional CDs, these usually offer higher rates than a traditional savings account, but they do not penalize you for making an early withdrawal from the account.

The bottom line: Start off 2026 by creating an emergency fund

Building an emergency fund is a great goal to have for the new year. The first step to take toward your goal is to get a better understanding of your income and spending and to build a budget that will help you toward your savings goals.

One of the best ways to have more money available to save is to reduce your spending on debt. If you have high-interest credit card debt, consider a personal loan from Rocket Loans which can help you consolidate those credit card balances into one lower monthly payment.