How To Start An Emergency Fund

If you want to know how to start an emergency fund, you are in the right place in more ways than one.

Starting an emergency fund is a smart financial move that can provide you with peace of mind and financial stability in times of unexpected expenses or emergencies.

Are you worried about your finances? Learn how to start an emergency fund

Disclosure:  We recommend products we believe to be suited for our own use and for our readers. We may earn a small commission at no additional cost to you through purchases made via affiliate links on this page.

We’ve all encountered unforeseen financial emergencies, whether it was a car accident, an unanticipated medical bill, a broken appliance, a loss of income, or even a broken cell phone. These unforeseen costs, whether large or small, frequently feel as though they come at the worst possible times.

The difference between being able to shrug off these unexpected expenses or being rattled by them is often one little notion called having an emergency fund. This is a crucial step any financially savvy person should take so you can protect yourself and proactively anticipate the unexpected. Read on for a step-by-step guide on how to start an emergency fund.

What Is an Emergency Fund?

Before we delve into how to start an emergency fund, let’s define what the term refers to. An emergency fund is not the same as a savings account. It is a liquid account – read, one that is readily accessible if need be - which gives you the ability to tackle unforeseen financial emergencies with serenity. It is literally peace of mind when it comes to your finances.

Think of it in terms of what the alternative would be if you were caught by a financial crisis unprepared. If you’re lucky, and IF you are able to manage it in such short order, you would probably have to resort to high-interest debt, large credit card charges, etc. Then, you have to pull yourself out of that “bad debt” over a period of time. And that’s the good scenario option. Things could be much worse.

That’s why your first financial priority should be putting money aside to never be caught unprepared. Do so each month in whatever amount you can manage until you reach your goal of having a sizable emergency fund.

After you have done so, the second phase is to continue on your personal finance journey by then saving with the goal of investing to create wealth for yourself.

How to Start an Emergency Fund: Determining the Amount

The exact amount you need in your fund will depend on your unique financial situation and is not set in stone. In general, trying to save three to six months worth of living expenses is deemed a reasonable range. It gives you a safety net in the event of loss of income, or other unforeseen financial circumstances.

Keep in mind that your monthly expenses, level of debt, and number of dependents are some elements that may weigh in the amount you need according to the type of an emergency you could face.

Here are steps to follow:

#1. Set a Savings Goal

Determine how much you want to save in your emergency fund. A general rule of thumb is to aim for three to six months worth of living expenses.

This amount can be adjusted based on circumstances, your personal or family situation, risk tolerance, etc.

#2. Calculate Your Expenses

Make a list of your essential monthly expenses, including housing, utilities, food, transportation, insurance, and debt payments.

To get your savings goal, multiply this total by the number of months you want to be covered should an unexpected or major emergency arise.

#3. Analyze Your Budget

Take a close look at your income and expenses to identify areas where you can cut back or save more.

Consider reducing discretionary spending or eliminating unnecessary expenses to come up with extra money to put in your emergency fund. You can relax cost-cutting once your emergency is in place.

#4. Start, and Be Consistent

If saving a large amount seems daunting, start by setting aside a small portion of your income each month, but do start!

The key is to be consistent and make it a habit. You will be surprised how even saving a small amount regularly adds up over time. As they say, set it and forget it!

#5. Use a Separate Account

It’s a good idea to have a separate account specifically for your emergency fund.

This helps you avoid dipping into the funds for other things that never fail to pop up. Also, keep your funds available and liquid so that cash is easily accessible when needed.

This is not money to lock into a long-term financial transaction that’s difficult or costly to get it out of.

#6. Automate Your Savings

Set up an automatic transfer from your main account to your emergency fund account each time you receive money.

Automating the process allows you to make progress towards your goal effortlessly, and it helps you fight temptations.

#7. Make Your Emergency Fund a Priority

Remain committed to reaching this financial landmark because it really is a game-changer. Avoid using the funds for non-emergency expenses or impulse purchases.

Think of your long-term financial goals and the security that your emergency fund will enable you to enjoy.

#8. Adjust as Necessary

If your contributions get out of alignment, or you hit a snag, adjust the amount accordingly, but keep going until you reach your set goal.

How Often Should You Deposit Money in Your Emergency Fund?

Just as there is no amount set in stone to keep in your emergency fund, there is no right or wrong amount of money or frequency at which you should contribute to your emergency fund.

Your unique situation will determine how frequently to transfer money to your fund. It’s common for people to align this with their pay cycle, but feel free to adjust it to your personal preferences.

How Necessary Is an Emergency Fund?

You have probably heard over and over that according to recent statistics, two-thirds of Americans are one paycheck away from financial disaster, including homelessness, etc. Half of the population has less than $1000 in savings.

The reality is that even a minor financial shock could cause reverberating shockwaves, set you back substantially, results in debt, and potentially have negative long-term effects.

People have trouble recovering from a financial shock primarily because of no money set aside for an emergency. The go-to answer bad loans or credit cards, which can result in debt that typically becomes chronic for most.

Using other savings like retirement account funds is another way that people get themselves out of unforeseen financial crises. But, assuming you have one of those, it is not an ideal way to use it to say the least.

How to Start an Emergency Fund: Helpful Tips and Tricks

When you are getting started and learning how to start an emergency fund, these tips and tricks, as well as answers to when you could feel justified to dip into your emergency fund, can be very helpful in being successful:

Start Small if Needed

If saving a large amount seems like a big challenge, start with a smaller goal and gradually increase it over time.

The key is first to start, and to get in the habit of saving consistently.

Take a Good Look at Your Budget

Analyze your income and expenses to identify areas where you can cut back or save more. Allocate a specific portion of your income to your emergency fund in your budget, and “pay yourself first”!

No matter how small the amount you can contribute, you should always be your #1 priority.

Get Your Priorities Straight

Treat your emergency fund as a financial obligation and prioritize it alongside other important expenses.

Again, always pay yourself first, especially before non-essential expenditures hijack your money.

Weed Out Unnecessary Expenses

Identify discretionary spending that you can at least temporarily minimize or eliminate.

This could include eating out less frequently, canceling unused subscriptions, or finding cheaper alternatives to your existing spending.

Capitalize on Windfalls and Bonuses

If you receive unexpected income such as tax refunds, work bonuses, or monetary gifts, consider allocating a portion or all of it to your emergency fund to get it to where you want it as soon as possible.

Save Now, Splurge Later

Resist the temptation to splurge on unnecessary spending and purchases that can wait.

Instead, use that money to boost your emergency fund. The you of some months or years down the road will greatly thank the you of today for these decisions.

Separate Your Emergency Fund From Other Money

Maintain your emergency fund in a separate account, ideally one that offers easy access to your funds, that is liquid and readily accessible in case of a real financial emergency.

So, as desirable as that should be, this is not money to lock into a high interest account if it’s going to be trapped or require substantial penalties for withdrawal. The amount in the account may not earn you that much interest anyway.

Replenish and Avoid Borrowing

If you must use funds from your emergency fund, make it a priority to replenish the amount as soon as possible. Do not borrow from it as that defeats the whole purpose.

Over time, your emergency fund will grow, providing you with peace of mind and financial security.

How to Start an Emergency Fund: When Should You Use Your Emergency Fund?

An emergency fund should only be used to cover unforeseen expenses or financial emergencies that arise in your life.

Here are some situations when it is okay to tap into it:

Job Loss or Income Reduction

If you lose your job or experience a significant reduction in income, your emergency fund can help cover your living expenses until you secure new employment or stabilize your financial situation.

Medical Emergencies

If you or a family member experiences an unexpected illness, injury, or medical expense that is not fully covered by insurance, you can step in and cover the cost.

Home or Car Repairs

If your home requires immediate repairs due to sudden damage or if your vehicle needs major repairs, your emergency fund can help prevent further financial strain, or keep you from getting into sizeable bad debt.

Urgent Legal or Insurance Issues

If you encounter legal issues or need to respond to insurance matters such as deductibles for claims, you could consider solving the problem with your emergency fund as long as it’s urgent and necessary.

Family Emergencies

In urgent situations where you need to respond, such as travel for a family emergency, or an unforeseen similar event, the emergency of the matter could require that you dip into your emergency fund.


An emergency fund is meant to provide financial security and peace of mind during unexpected circumstances.

Make it a goal and a priority until you have reached a consequent amount. Then, the money should only be used for genuine emergencies, not for things like vacations or impulsive purchases.

It is important to replenish your emergency fund as soon as possible after using it so that you can prepare and be ready for any other future surprise crisis.

You might like these

Are YOU on Track for Financial Success in Your Future?

Personal Finance Quiz

Take This Quiz
to Assess!

Start Making Money
with Affiliate Marketing!

Recent Articles

  1. The Finance YouTuber Phenomenon & Shocking Rise To Riches

    Finance YouTuber
    5 finance Youtuber secrets they won’t tell you on building wealth on YouTube.

    Read More

  2. Investing For Beginners: A Strategic Guide

    Investing For Beginners
    Learn more about investing for beginners, with accelerated investment strategies to maximize your earnings. It's not as difficult as you might think!

    Read More

  3. What To Do If You Have No Savings For Retirement

    What If You Have No Savings for Retirement
    What to do if you have no savings for retirement. Is your retirement is looming ahead? If you have no savings you may be worried about the future.

    Read More