Creating an emergency fund
Could you fund your basic expenses if you were injured or out of work for a while? That’s the goal of an emergency fund. Learn more about how much to save and the priority you should place on the fund.
Reasons to save
What would you do if you lost your job tomorrow, or were injured and couldn’t work? Funding your basic expenses while you recover or look for another opportunity is the goal of an emergency fund.
- Helps you stay out of debt if your income stops or decreases
- Can help you feel secure since you'll know you have a cushion
- Helps cover unexpected expenses, such as a car repair, without affecting your monthly income
How much to save
Most experts recommend covering three to 12 months of basic household expenses: housing, food, utilities, transportation, healthcare, insurance and loan payments. The amount you need in your fund depends on your responsibilities and your safety net.
- If you don’t have children, you may want to start with an emergency fund of three months, giving yourself a reasonable amount of time to find a new job or recover from a large expense.
- If you support a family, you may want a little deeper cushion.
- If you have no spouse or relatives to help you, you may want to save even more.
How to save for your emergency fund
Try these ideas for setting aside money:
- Start small—even $25 every month will begin to add up and will help you stay motivated.
- Open a separate account at your bank or credit union.
- Set up a payroll deduction so your bank or credit union splits your automatic deposit into multiple accounts.
- Establish an automatic weekly or monthly transfer from your checking account to your savings account.
- Start your account with unexpected cash, such as a tax refund.
Help balance financial priorities
It may be hard to find extra cash or choose where to put it. Here are some ideas to get you started:
- Separate your needs from wants. Can you buy fewer meals or coffees out, find cheaper entertainment or give up other optional expenses?
- Try not to miss out on free money. If your employer offers a match on your retirement savings, you may want to take advantage of that first.
- If you don’t have enough money to fund your retirement plan and also feed your emergency fund, consider splitting your savings between the two.