How to Build an Emergency Savings Fund

Published on July 17, 2020 by Daniel Azzoli

Person doing research on emergency savings fund

You can plan out all your monthly expenses, keep a close eye on your budget, and track your spending, but no matter how careful you are with your money, life can throw some unexpected expenses your way. And if you’re trying to make ends meet, finding the money in your budget to deal with an emergency can be even more challenging.

So, how do you prepare yourself? Have an emergency savings fund at the ready! While that may be easier said than done, if you follow the right plan and arm yourself with the right tips and tricks to find a little extra room in your budget, a healthy emergency fund may be within your reach.

In this article, we’re going to dive into the ins and outs of an emergency savings fund, talk about what they should be used for, go over the steps you can take to start building an emergency fund, and look at some tips to help you start contributing to it.

What is an Emergency Savings Fund and Why do You Need One?

The purpose of an emergency fund is fairly simple. It’s money that you put aside solely for the purpose of dealing with any emergency expenses that may suddenly pop up. This could be for something like an emergency medical expense, car repair, or home repair.

While it’s important to understand what it’s meant to be used for, it’s equally as important to know when you shouldn’t use it. This money shouldn’t go towards your next shopping spree, the new tiling you’ve been meaning to put in your bathroom, or your year-end family vacation.

It also shouldn’t be factored into any of your long-term savings plans or planned future expenses like college tuition. Its purpose is to act as a safety net only to be used in an emergency situation.

They’re also useful in that they may be able to prevent you from having to take on debt to handle your emergency. While credit cards and unsecured personal loans can be useful in certain situations, having emergency savings at the ready can help you avoid taking on debt in the first place.

How Much Should You Save in Your Emergency Fund and Where Should You Put it?

The answer to the first question is going to vary based on a whole host of factors like your monthly budget, your income, your lifestyle, and more. Generally, you should be aiming to have three to twelve months of expenses saved, but that’s a pretty wide range.[1] So, how do you determine where you fall on the spectrum?

Well, you’ll have to take stock of your financial situation and determine how stable things are. For instance, if you and your partner both have an income supporting your household or you’ve been making a steady and secure living for multiple years, you may feel like three months of household expenses will be enough. But if you’re the sole breadwinner of your household, you work on commission, or you’re self-employed, you may want to aim to save six to twelve months worth of emergency savings.

While the mere idea of saving up this amount of money may seem overwhelming, keep reminding yourself that Rome wasn’t built in a day! This is an ongoing process that’ll take time and patience. Focus on putting a small amount away from each paycheck and feel free to adjust this amount as your other expenses fluctuate.

Where Should You Put Your Savings?

When it comes to the specifics of where you’re actually putting this money, you’ll want to make sure you have relatively easy access to it, but not so easy that you’ll be tempted to spend it. This means you won’t want to simply open up another checking account, or worse, keep it in your primary checking along with the money you use on everyday expenses.

Consider placing it in a high-interest savings account that you can access without penalties. This way you’ll have some peace of mind knowing that you can withdraw these funds in an emergency.

3 Steps to Building an Emergency Fund

Now it’s time to look at how to actually go about building your emergency fund. While the process is long and can be tedious at times, the steps listed below are fairly straightforward and can be used for budgets of all sizes.

Calculating emergency savings into a budget.

1. Create a Budget

If you’re not already working within the confines of a monthly budget, now is the time to start. Begin by making a list of all your regular expenses for the month, as well as your income. While your expenses may vary from month to month to one degree or another, take a look at your bank statements for the previous six months and average it out to give yourself a better idea of how much you typically spend in a month.

Once these things are tallied up, you should be able to see how much extra money you have that could start going towards building your emergency savings.

2. Set a Realistic Savings Goal

Now that you have a better idea of how much money you spend every month, you can start to put your savings goals into place. While no one’s going to blame you for dreaming big, make sure the goals you set are within your reach. You don’t want to set a lofty savings goal, get discouraged along the way, and give up. The more realistic your goal is, the more likely you are to see the process through till the end.

3. Make Adjustments to Your Savings Goal

So now you’ve created your budget, figured out how much money can go towards building an emergency fund, and set a savings goal. Now it’s time to put things on autopilot and start saving, right? Well, not exactly. While automating parts of the saving process can be helpful – a thing we’ll discuss in more detail later on – this doesn’t mean that your work is done. Remember that your expenses aren’t static, and budgets can change over time.

Maybe you’ve run into some emergency expenses along the way and have to tap into your line of credit to help deal with the costs. You may need to take a portion of the money you planned to put towards your saving and use it to pay down your line of credit instead.

Or maybe you or your spouse got a promotion or pay increase at work, and you can start to contribute even more to your emergency fund! In either case, you may want to make an adjustment to your original savings goal based on the ups and downs of your household’s finances.

4 Tips To Help You Save Money for Your Emergency Fund

Now you have an idea of the steps you need to take to start contributing to your emergency fund. But how can you start putting money towards your savings when you don’t have any extra room in your budget? Let’s take a look at four tips that may be able to help you find some room in your budget to start contributing towards your emergency savings.

1. Break Your Goal into Smaller Increments

Looking at the total amount you’re aiming to save can sometimes be daunting, especially when you’re trying to save up several months worth of living expenses. Instead, break up whatever monthly total you’re looking to save into small, short-term increments that may be well within your reach of saving.

Let’s say you’re aiming to start by saving $120 a month. This breaks down to about $4 a day, which may seem a lot easier to digest. Maybe you make your coffee at home one day before work instead of going to the expensive coffee shop around the corner. Or maybe you make your lunch at home in advance instead of eating out. Making minor adjustments like this may help you hit the small daily goals you set for yourself and can ultimately lead you to the bigger totals you set every month.

2. Review Your Budget and Look for Small Cuts

Like we just touched on, small savings can start to add up. As you start looking into your budget you’ll get an idea of how much you’re spending in different areas of your life. This may help you see where you can make some cuts. Maybe you can walk or bike to work instead of driving. Maybe you have a few more streaming services than you really need. Try to gear your mindset towards reducing some of your expenses in the present instead of focusing on the vague notion of saving money in the long term. Being specific may help you to focus on your actual goals.

3. Pay Off Your Debt

Trying to reach your savings goal while simultaneously paying off debt can be a tricky task. If you’re carrying debt from a personal loan or credit card, you may want to focus on paying that off first before you start putting money towards your emergency savings. But if you’re paying off a long-term loan with manageable rates and you have the room in your budget, you may be able to comfortably pay off your debt while still working towards your savings goals. Make sure to see what works best for you and make your decision accordingly.

4. Automate Your Savings

If your income and monthly expenses are fairly consistent, it might be a good idea to automate the saving process by setting up automatic transfers into your emergency savings fund. Set up these transfers to take place on your usual pay date or see if your workplace will deposit a portion of your paycheck directly into your savings account. Just remember that this may not be the best option if your income or expenses fluctuate on a regular basis.

researching emergency savings fund on laptop.

Consider a Personal Line of Credit When Your Savings Fall Short in an Emergency

As we’ve already mentioned, the process of putting together an emergency fund is a long one. It won’t happen overnight, and emergency expenses can pop up in the meantime. When this happens, you’re going to need to find a way of handling them, and you may want to consider using an unsecured loan or line of credit.

A line of credit can serve as a financial safety net to help you tackle unexpected expenses that may come your way. This is a form of revolving credit that allows you to draw funds from your available credit, either in small amounts or all at once.[2] As you pay down your balance, you can continue to borrow money when you need it from your available credit. Being able to request draws, repay and redraw as neededmay make emergency loans online useful when you’re facing an unexpected expense that needs your immediate attention.

Keep in mind that all loans aren’t created equal – a myth we’ve dispelled on our blog in the past – and that there are some that won’t be suited to your particular needs. If you find yourself looking for a loan, check in with this guide to learn more about what to look for.  

Start Working Towards Your Emergency Savings Fund Today

We know it’s not always easy to find extra money lying around in your budget. If it was, you’d have likely found it already! But if you stay focused, follow a concise plan, and remain patient, you may be able to slowly work your way towards an emergency fund that provides a little comfort in times of emergency.

And remember, if you do run into a situation where you need immediate funds but haven’t built up your savings yet, consider looking into an unsecured loan or line of credit. It may be able to provide the safety net you need until you hit your savings goals! For more information on borrowing money online as well as other useful financial tips, visit the CreditFresh blog to learn more today.

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.


[1] https://www.thebalance.com/how-much-should-i-have-in-my-emergency-fund-2388353

[2] https://www.thebalance.com/the-difference-between-revolving-and-non-revolving-credit-960706