How to Start an Emergency Fund Step By Step

Life is unpredictable, but you can prepare for it. Having an emergency fund is an essential thing you need to have in your life. If you don’t have one you should start it right now, the sooner the better. Here is how you can build an emergency fund:

how to start an emergency fund

What’s an Emergency Fund?

An emergency fund is a certain amount of money a person saves up for unexpected events such as being fired, accidents, medical bills or car, appliances, or home repairs. You should keep in mind that this money is not for impulse buys, such as new clothes or a new smartphone.

Keep in mind that having an emergency fund is different than saving money. Savings are for financial goals you might have like a down payment for a new home or a vehicle, a dream vacation you always wanted, or any other thing you want to buy but can’t afford it right now, but it’s not a priority. 

Decide How Much Money You Need to Save

The amount of money you will put on your emergency fund varies between people. Financial specialists recommend having at least three to six months of your monthly expenses.

If that sounds intimidating, you should first aim at having at least $1,000. One thousand is not that much but it can definitely help depending on the situation you’re dealing with, and it might motivate you to save a lot more.

It is also crucial to start building your rainy day fund even if you have a lot of consumer debt, because of two reasons, it will make you create a habit of saving money and in case of an emergency, you won’t have to create even more liabilities. It’s advised to save at least 10% of your income.

Where Should You Keep Your Emergency Fund?

You should not keep your emergency fund in high-risk investments like the stock market, or investments with low liquidity, meaning that you can’t withdraw your funds quickly. 

Therefore, the best place you can keep your money for this type of goal is in a high-yield savings account. A good tip if you have a checking account is to set automatic transfers to your savings, so that you make this process simpler. 

Certain bank accounts also provide a feature called next dollar round up, which means that every time you buy something with your card, the amount of the purchase will be rounded up to the next whole dollar and the difference will be transferred to your savings. Other options include money market accounts and short-term CDs.


Each day it becomes more evident that emergency funds are indispensable. By having one you won’t have to depend on others to borrow money and having to pay lots of interest. It requires discipline, but in the end, it will be worth it because you will sleep better at night knowing that you are financially safer.


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