How to Build an Emergency Fund

We all know that life is full of unexpected surprises, and not all of them are positive. From a broken down appliance to a major injury, we never know what life can bring - but preparing for emergencies is the important part. Financially speaking, one of the best ways to get ahead of any unplanned expense (or sudden lack of income) is to create an emergency fund.

What Is an Emergency Fund?

An emergency fund is an amount of money set aside strictly for emergencies. Perhaps you fall at work, and are unable to go back for a few months. Even if you have insurance or vacation time, you may not earn your full salary while out for recovery. If you ever have to care for an ill family member, there are thankfully programs like Family Medical Leave Acts, but these again only provide a percent of what you typically earn.

Are you prepared to live on a percent? Creating an emergency fund can put your mind at ease, knowing that should life’s unexpected incidents create a financial gap, you’ll be covered.

Why Emergency Funds Are Important

It may seem like an unlikely occurrence, but few emergencies are planned and expected. The best thing you can do is plan ahead by placing as many “safety nets” as possible to prevent such incidents from leaving them unable to survive.

Even a small financial downfall can create a lifetime of problems. If you can’t pay your bills for a few months, it is very difficult to catch back up. If you ruin your credit score, with late payments or maxed-out credit cards, it can take a long time to recover. Having an emergency fund is one way to make sure that even small incidents, like the loss of your vehicle or a broken down washing machine, don’t leave you financially ruined. 

How Much Should I Put Into an Emergency Fund?

Typically, we recommend that you have three to six months of your living expenses set aside for an emergency. Assuming you’re living within your means, an easy way to calculate this (with a little buffer) is to just calculate how much you’d be making in take-home pay in three months / six months.

Now does that seem like a large number? Don’t worry! It’s possible to build this up - and we’re going to show you how!

Tips for Building an Emergency Fund

Gathering 3-6 months’ salary may seem an insurmountable task; however, some savings is always better than nothing. I first like to remind clients that it is not a goal you must magically accomplish in one day. It is something you can squirrel away for over time. Don’t think that, because such a number sounds too high, you shouldn’t do it at all. 

First, set aside a separate bank account for savings. This makes it easier to track how much you have set aside and lessens the temptation to view that money as “available” to you. 

Next, try to find small amounts each month that you can dedicate to the emergency fund. Perhaps the electric bill is down this month. Consider adding that difference to the fund. Maybe you can live without your morning drive-thru coffee every single day or are able to cut back on one or two streaming services that you don’t use very often. Take those small amounts and put them into your savings account, every month.

Another way to accomplish this is through direct deposit. Many employers allow you to designate your paycheck to different accounts. I recommend putting whatever amount you can afford - even if it’s $25-$50 per paycheck - into a separate savings account. Out of sight, out of mind! If you can’t do this automatically with your employer, you can set up an auto-transfer through your online banking. 

Another way to build up your emergency fund is to pick up a side hustle. For many of my teacher clients trying to save, I recommend sites like Teachers Pay Teachers, which allow educators to sell their lesson resources for profit. This often doesn’t require much additional work on your part but can bring in some extra cash.

You can also join an app like Uber or Lyft, teach an online course in the evenings, or sell items around the house (and then find deals to flip). All of these side hustles have the potential to help you build your emergency fund to a comfortable level. 

Let’s Work Together on an Emergency Fund

Would you like some personalized help? Set up a meeting with my office. We can decide where that fund should be placed, how to contribute to it, and what it should be designated for specifically. 

While tips are always helpful, I love working directly with an individual to understand their unique needs and challenges. Contact me anytime!