02/12/2025
Building an emergency fund can feel daunting, but these tips can help
Maybe your car broke down, your computer was stolen, or you had a surprise visit to urgent care. Emergencies are inevitable, but you can prepare to deal with them by building an emergency fund.
The industry standard is to save three to six months of expenses in an emergency fund. However, this can feel daunting if you live paycheck to paycheck or if you have debt. But if you’re in either of these situations, it’s even more crucial to build a financial safety net that can help you in times of crisis.
“Emergency funds allow you to prevent further debt,” said Jaime Eckels, certified financial planner and wealth management leader for Plante Moran Financial Advisors.
The idea of saving for three to six months’ worth of expenses can be daunting, so it’s best to start with a smaller milestone. Rachel Lawrence, head of advice and planning for Monarch Money, recommends starting with a goal of saving $1,000, then moving on to save one, three, and six months of expenses.
“Starting small is okay. Even if it’s $20 right out of your paycheck, those small things can add up,” Eckels said. She recommends building your emergency fund in a separate account from your regular savings account, ideally a high-yield savings account, which offers a higher interest rate than a traditional savings account.
Eckels recommends setting up automatic savings as a low-effort way to build your emergency fund. Scheduling your savings to be withdrawn from your bank account as soon as your paycheck arrives is an effective way to build a savings habit without having to transfer the money manually.
“Unexpected chunks of money that maybe you weren’t expecting, like tax refunds or getting a third paycheck when you normally get paid twice a month, or a bonus, those are your best ways to make progress when you’re tight otherwise,” said Lawrence. In general, Lawrence recommends that people keep 10% of their windfall for themselves and the rest for their emergency fund. With that breakdown, you can both save and feel rewarded by the unexpected income.
Chances are that an emergency will happen, and when it does, you don’t need to feel guilty for using your emergency fund, Lawrence said. Instead, it’s best to think about how you’ve achieved your goal of building a financial safety net for yourself.
Maybe your car broke down, your computer was stolen, or you had a surprise visit to urgent care. Emergencies are inevitable, but you can help by building an emergency fund.