how to build an emergency fund

Emergencies seem to wait for the most inopportune time to strike. Even with $1,000 saved, you may have a tough time weathering a financial emergency that lasts longer than a month. But the 24% of Americans with zero dollars set aside are the most financially vulnerable.

If you have little to no savings, now is the time to start an emergency fund to protect your livelihood in the future. Find out how much to save below along with 8 steps to help you grow a healthy emergency fund.

What Is an Emergency Fund?

Disaster comes in many forms. Sometimes it’s a job loss, medical emergency, vehicle or home damage, or even a global pandemic. An emergency fund is a stash of money that helps you ride out the disaster. It’s a safety net you use to continue to pay your bills until the crisis has subsided.

An emergency fund is usually set aside in its account to avoid using it unless it’s a true emergency. Having this money can protect you from falling into high-interest debt. For example, from credit cards or loans.

Not too long ago we talked about how to pay off a lot of debt in less than five years. An important part of getting out of debt for us was knowing how to build an emergency fund. Many have written about the importance of saving for a rainy day but most of what you’ll read on the subject is either unrealistic or just not helpful.

For example, a common refrain is that you should save three to six months’ worth of income for emergencies. While this rule of thumb is fine as far as it goes, it can take some families years to reach this goal. And while they are trying to save, do they ignore paying off debt or saving for retirement? Oh, and by the way, is three months’ worth or six months’ worth of expenses best?

Dave Ramsey has tried to address these issues. In his seven baby steps, he advises folks to save $1,000 in an emergency fund and then tackle the debt with “gazelle-like intensity.” As with the three to six-month rule, Dave’s approach may be fine for some. But it raises at least two questions:

  • Why $1,000? I think most families need a lot more.
  • Why does it have to be all or nothing? Why can’t you save for a rainy day, pay down debt, and save for retirement all at the same time?

Let’s start with the first question and figure out how much to save for emergencies.

How Much Money Should You Keep In Your Emergency Fund?

The exact dollar amount that you need to have in your emergency fund depends on your situation. Dave Ramsey says to save $1,000, and then start tackling debt.

If your monthly budget is $10,000, $1,000 in savings would represent a 3-day emergency fund. This is not exactly the kind of thing that will help you sleep at night.

Rather than pretending there’s a single best answer to this question, here are the factors to consider when deciding what’s best for you:

  • The consequences of a financial catastrophe: If you are single living in an apartment, a job loss may mean moving back in with mom and dad. In contrast, if you have a family of four and little familial support, a financial crisis may mean looking for a homeless shelter. The greater the risk, the more you should save for emergencies.
  • The interest rates on your debt: If you are stuck with credit card debt at 30%, you’ll want to start paying it down as quickly as possible. As a result, a smaller emergency fund may be appropriate. If your only debt is at a much lower rate (e.g., a car loan or home equity line of credit), you won’t need to pay down your debt as urgently.
  • Your access to cash: If you can tap a line of credit or retirement savings in an emergency, a large rainy-day fund may not be critical. In our case, we went without any savings for a time because we could access a line of credit and retirement savings.
  • Your risk of job loss: While anything can happen, some of us are more at risk of losing our jobs than others. There’s no rule of thumb here; you have to assess your situation. But if you think you’re unlikely to unexpectedly lose your job, a smaller emergency fund may be appropriate.
  • Your sources of income: If you have multiple sources of income (e.g., two-income family), it’s worth considering whether you can get by on smaller savings while you pay off debt. The point is that it’s probably unlikely, although not impossible, that you would both lose your jobs. And what if you have a robust side gig? You could rely on that to pay your expenses for a short period, which means a smaller emergency fund.
  • Your employer’s retirement plan: If you have an employer that matches 401k contributions, you’ll want to take advantage of the match as quickly as possible. This could mean building up your savings at a slower pace, all other things being equal.

With these factors in mind, here’s how to build an emergency fund.

How to Build an Emergency Fund

Commitment, a methodical approach, and the right tools can pave the way to building your fund. Once you’ve set up a system that works, your savings can grow with little thought or intervention on your end. 

1. Create a Budget 

There’s no way around it. Tracking your income and expenses is a must before figuring out how much you can allocate to a savings fund. The easiest way to do it these days is with a budgeting app.

The right budgeting app can also help you discover areas where you’re overspending. For example, you may be paying $12 a month for a subscription you no longer use or need. Canceling that subscription can allow you to save $144 extra per year.

Budgeting apps also use visuals to track your progress as you work toward your savings goals. This allows you to watch your emergency fund grow and can encourage you to keep saving.

2. Open a High-Yield Savings Account

An emergency fund should (hopefully) sit for a while before you need to tap into it. It makes sense to park this stash somewhere with minimal risk and some interest return. A high-yield savings account can offer high-interest rates with no fees and a low minimum deposit to open. 

A separate account for your savings can keep you from spending your emergency money on other expenses. Keep in mind, that while savings accounts are liquid, you can only make a limited number of withdrawals. Usually, it’s six withdrawals per month before you’ll pay a penalty.

3. Start Small

As a first step, save one month’s worth of living expenses before tackling any debt or investing. A cushioned emergency fund doesn’t happen overnight. It’s a series of small, consistent contributions over time. Your budget may reveal that your finances are too tight to contribute to savings. If that’s the case, you want to consider a microsavings app.

In the true spirit of penny-pinching, microsavings apps save your spare change. When you make a purchase, a microsavings app can round up the cost to the nearest dollar. Then, it can send the difference to a savings account.

For example, if you buy a coffee for $5.50, a microsavings app can round up the purchase to $6 and send $.50 to your savings. If you’re thinking $.50 isn’t worth saving, consider this next example.

Say you make five purchases per day and each one sends $.50 to your savings. That’s $2.50 per day, $75 after 30 days, and $900 a year. So saving your spare change is a helpful way you can start saving with little financial impact on your everyday life.

4. Set Automatic Deposits

A popular personal finance strategy is to “pay yourself first.” This doesn’t mean shopping for yourself first. Rather, pay your future self by contributing to your savings when you get paid.

Setting up automatic payments is a great way to pay yourself first. Some employers even allow you to send a portion of your paycheck directly into a savings account. This eliminates the temptation to spend it if it’s sitting in your checking account.

5. Pay Down Your Debt

Once you have a month of expenses saved up, split your extra money between paying down debt and building your emergency fund. When you’ve reached your emergency fund goal, direct your extra cash toward paying off debt. Taking care of both, even if slowly, is important to overall financial well-being. For example, say you choose only to pay down your debt, and a crisis strikes. You may end up accessing credit again and paying interest on that emergency expense.

Having some money growing in emergency savings is better than nothing. And, as you pay off credit card debt, you can redirect freed-up money to grow your emergency fund even faster.

There are budgeting plans that take a balanced approach to reduce debt while saving. The 50/30/20 budget is a good example. This budget suggests spending 50% of your income on necessary expenses. This includes any minimum credit card payments. And 30% of your income can go toward wants. Your wants include any extras like vacations and streaming services.

The remaining 20% of your income is for savings and paying down debt. And you can divide the 20% as you see fit. For example, saving 10% of your income and using 10% to pay down debt. Or, saving 15% of your income and using 5% to pay down debt.

Be mindful of the factors listed above to tailor your approach to your specific circumstances. If you have debt at 30%, that will take priority over just about anything else, for example.

6. Track Your Progress

Building your emergency fund is a marathon endeavor. It takes patience, but tracking your progress can be exciting. In addition to a budgeting app, consider using a tool like Empower.


Empower isn’t a budgeting app. Instead, it offers a variety of free tools to help you track your overall financial well-being. Empower can suggest a reasonable emergency fund goal and track your progress. When you connect all your accounts to Empower, you can also keep track of your net worth

Again, seeing your progress can motivate you to stick to your savings habit. Also, celebrating with small rewards along the way (that don’t put you back in debt) can inspire you to keep saving. 

7. Save Your Windfalls

The average 2023 tax refund was $2,840 according to the IRS. Instead of spending that money, send it to your emergency fund.

A couple extra thousand bucks is one of the fastest ways to start an emergency fund or to fatten up an existing one. Other windfalls like inheritances, or selling your possessions can also boost your savings. It’s wise to pair these windfalls with a steady savings contribution plan.

8. Save Your Cash Back Rewards

If you use a cash-back credit card for your everyday spending, think about saving your rewards. The right cash-back credit card could add hundreds to your emergency savings fund per year.

Check out this list of the best cash-back credit cards to find the one that fits your lifestyle best.

Who Needs an Emergency Fund?

Since no one is exempt from unforeseen emergencies, everyone needs an emergency fund. According to a recent report from the Federal Reserve, 20% of adults experienced unforeseen medical expenses with a median cost of $1,000 to $1,999.

Where to Keep Your Emergency Fund

There are a couple of good options, and they depend on your specific circumstances. It makes the most sense to place your emergency fund in a high-yield savings account. This allows you to access your money in case of an emergency. And your savings can grow with virtually no risk. 

You’ll find the best savings account interest rates from online banks. Select one with no fees and a low minimum deposit. Our list of the best savings accounts breaks down the APY, fees, and minimum deposits so you can choose the best one for you. 

Once you’ve built up a cushion, you can look into getting some higher rates with CDs. I like the Ally Bank long-term certificates of deposit because they have relatively low penalties for early withdrawal.

As a related matter, you can also create a CD ladder to take advantage of high rates and have regular access to your funds. With current rates at historically low levels, however, sticking with a savings account is probably the best option.

Finally, as your investments grow and you eliminate debt, you may find little need to keep a lot of money in cash. Particularly when interest rates are low, you may want to consider low-risk bond funds as an alternative to a savings account. Since rates are likely to eventually rise, stick with short-duration funds. That way a rise in rates won’t have a major effect on the price of the fund.

Frequently Asked Questions (FAQ)

How long does it take to build an emergency fund?

Those who make small but regular contributions to their savings fund may need to wait a couple of years to see a few months’ worth of expenses in their emergency savings. For example, sending $100/month to an emergency fund for two years would yield $2,400 without interest. But, adding windfall payments like tax returns would significantly slash that timeframe.

How much money should I save every month?

You can use an emergency fund calculator to figure out an emergency fund estimation for you. If you’d like to meet that emergency fund savings goal within a year, take your total emergency fund goal and divide it by 12. That’s the dollar amount that you should put into your emergency fund.

If your financial situation has less room to spare, then consider the 50/30/20 budget, which puts a percentage of your income toward savings instead of a set dollar amount.

When should you use your emergency fund?

Any necessary financial obligation that’s not budgeted for is likely a good use for your emergency fund. These scenarios might include:

– Health emergencies for yourself or a loved one
– Vehicle repair
– Necessary home repair
– Job loss

You worked to create your emergency fund safety net, so use it in times of need and resist the urge to reach for a credit card.

Final Thought on How to Build An Emergency Fund

Emergency funds are a necessary component of your overall financial health. When the unexpected happens, your emergency fund can be your safety net until you get back on your feet. 

Building an emergency fund is different for everyone. Many people start their emergency fund from zero, and that’s OK. With a sound financial plan and a little patience, anyone can create a healthy emergency fund.

How you approach the saving process, how much you save, and where you put the money depends on your circumstances. The most important part is that you do indeed save for emergency expenses. That way, you can be sure that your family, and your finances, are protected when unexpected situations hit.


  • Rob Berger

    Rob Berger is the founder of Dough Roller and the Dough Roller Money Podcast. A former securities law attorney and Forbes deputy editor, Rob is the author of the book Retire Before Mom and Dad. He educates independent investors on his YouTube channel and at

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