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Do I Need an Emergency Fund? Here’s How to Get Started

What happens when you need money, stat?

No, not to buy a cute new Michael Kors bag or the latest Apple device — but to cover your rent when you unexpectedly lose your job or need to pay for an ambulance ride to the emergency room. Sometimes, we simply need money when we weren’t planning for it.

Do you have an emergency fund to cover it? For many people, the answer is no.

A study by Bankrate found that 56% of Americans don’t have enough saved to cover a $1,000 emergency room visit or car repair. And another study found that 6 in 10 adults don’t even have $500 saved. Yikes!

Without an emergency fund, you are forced to rely on credit cards or loans to cover expenses. Both of which have hefty interest rates attached, the average interest rate for credit card debt is about 21.99%. It’s a risky move.

And if you are like many people and find yourself using credit cards to cover unexpected expenses, you may end up in debt. Using credit cards to pay for an emergency expense is a slippery slope. We all need an emergency fund that can cover us for at least 3 months of living expenses.

If you don’t have an emergency fund, it’s not time to start kicking yourself about not having one. You’re not alone and stressing about the past won’t help you get one. Instead, it’s time to start building one.

You’re not alone in your lack of emergency fund. But you’re the only one that can work towards a solution.

Having an emergency fund is one of the most important things you can do for your financial wellbeing. You’ll sleep better knowing you have a financial safety net. You’ll feel more comfortable and secure in your finances. And if something does happen, you won’t be dealing with debt collectors or bouncing checks.

It’s time to start working towards this goal!

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What is an emergency fund?

An emergency fund is a savings account set aside for if and when you come across a financial emergency.

Financial emergencies are more frequent than you’d expect. They’re what you hope doesn’t happen, but want to make sure that you’re covered for if they do.

Some examples that could be considered financial emergencies include:

  • The sudden, unexpected loss of a job
  • A debilitating illness that doesn’t allow you to work
  • Simple (or even complex) dental and medical emergencies
  • Unexpected home repairs like water breaks or roof replacements
  • The loss of a loved one
  • Car troubles and auto emergencies
  • Unplanned travel expenses

And in all of these scenarios, an emergency fund could be seriously helpful.

Simply put, an emergency fund helps you cover unexpected expenses that cannot be avoided without breaking the bank or rendering you financially unstable.

It’s a fund that you don’t use but can access quickly when you need it. It’s a tool that can help you weather an unexpected, one-time expense. It’s also a way to give you some financial peace of mind in case you’re ever faced with a situation that may force you to tap into it.

How much should your fund be?

While the expert opinions on how much your emergency fund should have in it vary, popular opinion seems to be somewhere between three and six months of your monthly expenses.

That means if your expenses amount to $3,000 a month, you should have somewhere between $10,000 and $18,000 in your emergency fund. However, if you’re self-employed, it’s more pertinent to have a larger emergency fund. Many experts say you might want to consider having a reserve that can cover between nine and twelve months of expenses.

The most important thing when it comes to an emergency fund is that it needs to be big enough that you feel financially secure. But that doesn’t mean you have to have a stock pile of cash to put away right now, honestly none of us has this!

Instead, it’s time to start small and work your way up. Here are some simple tips to help you build a solid emergency fund by saving money in your day-to-day life!

How to build an emergency fund

You know you need on, but you’re starting from zero and you don’t know what to do. Don’t panic!

If you don’t have an emergency fund yet, there’s no time like the present to start. Even if you can only dedicate a tiny amount to it, going forward it should be a financial focus for you.

Here’s how to start building from nothing:

1. Open an emergency fund savings account

Having a separate savings account dedicated to your emergency fund is one of the best ways to manage money. Ideally, you do this with the same bank or credit union you already have a checking account. This will make it easy to transfer money to it.

It’s important to note that you want this account to be easy to access in case of an emergency. BUT you don’t want it to be too easy to get at. If it’s too easy, you may be tempted to dip into it for non-emergency expenses.

You should be able to open this account at no extra cost.

It’s OK if it’s online only and not accessible via your card. Honestly, it might be the best way to do it. Some institutions even have specific accounts for this purpose that might have a higher interest rate than a standard savings account.

2. Build a savings plan

You won’t build an entire emergency fund overnight. Honestly, no one expects you to!

Instead of trying to do it all at once and getting upset with yourself when it doesn’t happen, take the time to build a savings plan into your regular budget. Aim to save a little extra each month and watch as your emergency fund grows. But be honest with yourself, you can only save what you’re able to save.

You can’t pull a miracle out of no where. Even the littlest bit can help you get headed in the right direction as far as your emergency fund is concerned. If you have $20, $50 or even $100 to save a month, add that and get started!

3. Start saving money

With a plan set up (or in the middle of planning), you need to figure out where your extra money is going to come from. Ideally, you’ll set aside a little every paycheck, even if it’s only $20.

However, you might want to find a way to inject a bit of a bigger amount to start padding your emergency fund. It’s OK if you can’t, but here are some common ways you might be able to bump your emergency fund:

Tax refund

Tax season often sucks, unless you get a refund. But if you do get one, that can be a great way to drop a chunk of change into your emergency savings fund.

If you don’t need to use that money, consider putting it into a savings account. This can help push you a little closer to your goal, and make it more encouraging when you add your $20 each month.

Have a sale

If you’re getting rid of an old car, you could put some of the sale proceeds into your emergency fund. If you don’t have a lot of expenses, that can put a decent chunk of change into your account. Likewise, you might have a few things just lying around your house that you can sell via Facebook Marketplace.

You don’t need to sell things you use, but there’s nothing wrong with getting rid of odds and ends. Just make sure you use the money for emergencies—and not a cheap vacation or something else.

Save your change

Your change can go a long way if you save it right. If you use cash and have physical change, you can get in the habit of dropping it in a jar.

But if you’re a card spender, try getting into the habit of moving anything under $5 into your emergency account. If you have $192.15 at the end of the week, move that $2.15 into your emergency account.

It doesn’t sound like much, but if you save $2.15 every week, you’ll save $111.18. It really does add up!

Bring in another income

It’s a good idea to build multiple income streams, regardless of what you’re building it for. Even a side hustle that brings in a few hundred dollars a month can help you move towards your financial goals, whatever they may be.

In the case of creating an emergency fund, taking on freelance work could help you reach that goal faster so you can move on to the next one.

Cut expenses

This is my least favorite way to “save” money because many of us, particularly after we’ve just moved out, are already penny-pinching.

But if you have 3 streaming bills and only watch one regularly, or order in 3 times a week and could drop it down to 2, you could move closer towards that savings goal. Likewise, see where you can be saving money — for example, grocery shop smarter!

Emergency fund building tips

Small steps make big strides

We said it earlier, but it’s worth reiterating… no one is expecting you to make massive strides overnight. It takes small steps and lots of time to build up an emergency fund, and the first two tips can be a great place to start.

I want to stress that it’s important to save for big things (a wedding or vacation) as well as little emergencies like a flat tire or broken appliance separately. Your emergency fund should be dedicated to true emergencies only. Saving for a big thing and putting it on top of your emergency fund is not going to help you!

Automate your savings

One way to make the savings process easier is to automate it. If you have direct deposit, set it up to automatically go into your emergency fund account every paycheck.

If you don’t have direct deposit, try setting up an automatic transfer from your checking account to your savings account. Again, this doesn’t have to be $1,000 each paycheck, $20 is perfectly fine. You can only do what you can!

Make a budget

You NEED to start budgeting. If you haven’t yet, you can start today. When I started budgeting myself, I couldn’t use the electronic things – it was WAY too easy to get on track. Instead, I find using a digital paper planner (like this one) and a pre-made spreadsheet (you can get the one I use on Etsy) to be the best strategy.

Then I recommend setting up a weekly date with yourself to check in on your budgeting and recording all your transactions. With a digital strategy, you can even set up the alarms to remind you!

Ready to build your emergency fund?

We can’t save money for you, but we can make it a little more fun. Starting today is better than starting tomorrow, even if you can only check off the $5 box. We all have to start somewhere, and this is as good a place as any!

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Emergency fund FAQs

What happens if you don’t have an emergency fund?

Only a third of Americans have enough money set aside to cover three months’ worth of expenses in the event they need it. The other two thirds either don’t have an emergency fund at all or don’t have one large enough to cover unexpected expenses.

How necessary is an emergency fund?

You need an emergency fund, even if it takes you a few years to build it. If you’re like most people, you probably don’t have an emergency fund. An emergency fund is a savings account that you only use in case of an unexpected event, such as a job loss, medical emergency, or car repair.

You might be thinking that you don’t need an emergency fund because you have a good job and health insurance. But life is unpredictable, and even if you have a good job and health insurance, you could still face unexpected expenses.

Do most people have emergency funds?

Only just over half of Americans (literally 53%) have more savings in their emergency account then debt on their credit card. If you’re one of the ones without, you’re not alone. There’s no time like the present to start building!

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