Why you need an emergency fund and how to build it

You’ve likely heard for years that you should put money aside for a rainy day. It’s a good practice, but you might wonder why it’s necessary or how to begin saving regularly for it. There are some simple steps you can take to start an emergency fund that will certainly come in handy when an emergency arises.

If you’re hit with an unfortunate situation, such as a major car repair, storm damage to your home, job loss, or an unexpected illness, it might seem that the only option you have is using your credit card. Although a credit card is a good backup option to have when you need it, you should consider building an emergency account to accommodate large unexpected expenses.


Experts say you should aim to have three to six months’ worth of living expenses set aside specifically for these unforeseen circumstances. For most people, that amount would be $10,000 to $15,000. Online calculators can help you determine the basic expenses you need to plan for each month.

Once you’ve determined how much you need to set aside, you’ll need to make a plan to accumulate that money as efficiently as possible. There are two ways to fund an emergency account. You can make more money than you spend, or you can cut your expenses. You’ll have to determine tactic which will work best for you. You may decide to do a bit of both.


There are a number of inventive ways to save money. The most obvious way is to increase your income. You can do this by working your way to a raise, working more hours, or getting a part-time job on the side. If these aren’t viable options, look into selling items that you no longer use. Perhaps you receive money from family or friends for your birthday or other special occasions. Put at least some of it in your emergency fund rather than spending it. An easy, but often overlooked, way to save money is to earmark all of your daily pocket change to your emergency account. You’d be surprised how much you accumulate without really thinking about it.

Saving money can also be easier than you think. Cutting home expenses may be as simple as installing a programmable thermostat or a low-flow shower head. Take a look at your entertainment expenditures and cut back on meals out or premium cable channels. Think about carpooling or using public transportation rather than driving to work.

Once you start a fund for emergencies, make sure you regularly and deliberately add to it. Treat it as a monthly bill that must be paid. Financial advisors recommend that you put several hundred dollars of the fund into an easily accessible account and the rest into one that will grow financially.

When emergencies happen, money should be the last thing that you need to consider. By having enough set aside for emergencies and unforeseen expenses, you will save yourself stress in the long run.