Image of women planning out emergency fund at kitchen table.

How To Build An Emergency Fund

3-Minute ReadMay 20, 2022


As a general rule, life happens unexpectedly. Even with the best-laid plans, unplanned expenses are an inevitable part of being an adult. Unforeseen medical bills, loss of a job and major home or auto repairs that can’t be put off are just a few examples.

Frankly, it just flat-out stinks when these things happen, but it doesn’t need to feel like the end of the world. To ease these surprise burdens and avoid the need to scramble for cash, it’s a good idea to prepare as best you can by building yourself an emergency fund.

What Is An Emergency Fund?

An emergency fund is a designated amount of money set aside to help ease the pain when life sends an emergency cost your way. It can take many forms, but it usually takes the framework of a bank account that you don’t touch – except to put funds in, of course – unless a surprise financial hardship can’t be addressed by your monthly budget.

Remember: this isn’t the fund to draw from when the cold of winter has you itching for a flight to a beach or when that shiny new car is calling your name. And as the name implies, it’s for emergencies only, so treat it as such.

How Do I Start An Emergency Fund?

So, you understand having a financial safety net in the form of an emergency fund is important. Now, you're probably wondering where to get that extra cash to start one. Here are a few ways you can bring in some supplemental funds to get it going:

1. Budget Review

Take a look at your monthly budget and see where you may be able to trim the fat. Things like paying your mortgage and paying off your debt need to happen each month, but think about some other bills that aren’t considered "nonnegotiable."

Cable bill a little high? Maybe lose some of those premium channels. Fancy coffee habit getting a bit out of hand? Start brewing at home. Seemingly small expenses here and there can add up, and before you know it, you’ll have a nice little stream of savings to put into your emergency fund.

2. Financial Windfall

Not sure what to do with that fat tax return? Rich uncle leave you some cash when he passed? Resist the temptation to buy that boat you’ve been eyeing and put it directly in the emergency fund instead. It won’t feel like the most fun way to spend your newly found funds, but you won’t regret it when life throws you a curveball down the line.

3. Side Gig

A second job or just a few one-time freelance gigs can be a great way to store away a little extra cash. Your monthly budget likely doesn’t rely on this now if you haven’t been working on the side, so those funds can go directly into your emergency fund.

4. Auto-Deposit Part Of Your Paycheck

If you can swing it while still covering the monthly bills, have a portion of your paycheck directly deposited into your emergency fund. Pretty soon you’ll be living on the remainder and forgetting all about the auto-deposit into your rainy day fund every time you get paid.

5. Sell Something

This may sound like a bummer, but purging those piles of stuff you don’t use while at the same time raking in cash can feel really rewarding. Old toys that no one plays with, clothes that don’t fit anymore, or a boat you never use are just a few examples of items you won’t miss that you can turn into cash.

Where Do I Keep An Emergency Fund, And What Is The Best Account?

You want to have access to your money quickly, but also let it grow while it sits during nonemergency times. A high-yield savings account checks these boxes. Funds are easy to reach with this type of account, but you’ll also earn interest on your deposits.

Pay attention to monthly fees (avoid them) and interest rates (the lower the better) when selecting an account. Also, some banks offer a cash bonus for starting this type of account, so you can use that to kick-start your emergency fund if you qualify.

How Much Should My Emergency Fund Be?

Start with a realistic goal, like $1,000 or so. Once you’ve saved that up, start to grow it with the goal of covering what you would need for 3 to 6 months of expenses if your income completely dried up for that period of time. Most importantly, don’t become satisfied with any amount. Always keep saving and building up your emergency fund. You can never have enough!

We all hope that life goes the way we plan it, especially when it comes to our personal finances. You work hard, plan your monthly budget, save as much as you can, and hope that nothing happens to throw things off track. But we all know life can take some unexpected turns that require urgent financial needs. Now – armed with the knowledge of why an emergency fund is important and how to get one started – you’ll be ready.

Apply For A Personal Loan.

Explore your options today and see what's possible in one simple click.