6 Tips For Building Your Emergency Fund


We all know that an emergency fund is cash set aside to cover unexpected life events, such as medical expenses, home-appliance replacement, car repairs, or unemployment. We also know that the reassurance of knowing that large or small, we can maintain our normal life through the inevitable curveballs life throws at us helps us to breathe easier and have financial confidence. Yet, not all of us have an emergency account. The good news is it is never a bad time to start saving. The following six tips can put you on track to building your rainy-day-fund and perhaps even help you achieve some larger savings goals.

1. Determine How Much To Save

How much should you save? The short answer is three to six months’ worth of non-discretionary living expenses. The long answer is, it depends on your situation, some factors include your family’s unique needs (health, or lifestyle) job security (Government shutdown), and your risk tolerance (what amount will help you sleep at night?), but saving between three and six months of expenses is a good rule of thumb.

Note: Keep your emergency fund in an easily accessible account (savings or money market accounts, etc.).

2. Start Small

Set a reasonable target to start, and as you make progress, you can increase the amount incrementally. This is an important tip because being reasonable with yourself can be the difference between following through and throwing in the towel. For instance, if you implement a strategy that makes your life very uncomfortable, you will be less likely to follow through, and a savings account that builds slowly is vastly more effective than one that doesn’t exist. What’s reasonable? That’s for you to determine, but it could be $25 or $100 a week; the point is to start and stick to it. Slow and steady wins the race!

3. Save The Change

Several apps help you save, such as Chime, Acorns, or Qapital. The apps’ savings options range from automatically rounding up purchases and sending the difference to your savings account to automatically sending a percentage of your pay to your emergency account every pay period. Either app may be able to help fire up your emergency fund.

4. Trim The Fat

You probably saw this coming, but creating or reviewing your budget for excess spending is not a punishment; it’s an awareness. You can check your budget and make many small cuts that you won’t notice individually, but that adds up significantly. Here are my favorites:

  • Cancel those premium channels you never watch
  • Call non-contract service providers and ask for promotional pricing
  • Eat out less
  • Make your coffee at home
  • Request a rate reduction on your credit cards
  • Use a list for grocery shopping

Remember, the point here is not to alter your entire standard of living but to find small savings that cause little to no pain. Any savings found here can help jump start your account.

5. Make It Automatic

One way to meet your monthly savings goal is to make it automatic by transferring funds to your savings account each time you get paid. This will help you avoid the wait and see how much “you have left over” at the end of the month mistake.

By paying yourself first via recurring transfers, you won’t be tempted to spend it on other things that creep up.

6. Save Unexpected Cash

If you receive any unexpected cash (tax refund, credit card rewards, Overtime, etc.), resist the impulse to spend it and instead add it to your emergency fund. Since you weren’t accounting for this money in your monthly budget, it should be less painful to stash it away.

Tip: If you expect a tax refund, consider having it direct deposited into your emergency account.

Final Thoughts

Having an emergency fund can be the difference between weathering an unexpected expense and falling into high-interest debt; this is especially important if you already have high-interest debt. Building your emergency fund may take some sacrifice, but it can provide the security and financial confidence we all want, and once you’re done, you can start saving for more exciting goals (like that vacation). As your rainy-day-fund grows, a good idea is to establish some guidelines for what constitutes an emergency or unplanned expense. Finally, if you don’t feel confident in creating a savings strategy, or if you would like an expert opinion on your financial situation, you should consult with a qualified financial planner.

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2023 Legislative Change Notice

The SECURE ACT 2.0 passed and impacted many of the articles on this website. While the articles were correct when written, it’s impossible to re-write every article. Please consult a qualified professional (i.e., CFP®, CPA, or attorney) before implementing any strategy.

Published by Jose Armenta, MsBA, CFP®, ChFC®, EA

Jose Armenta is a CERTIFIED FINANCIAL PLANNER™ professional who specializes in helping federal employees get the most out of their federal benefits. Jose’s experience serving federal employees has provided him with valuable insight into federal employees' unique financial planning needs.

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