Creating an Emergency Savings Fund

Having an emergency fund saved up is recommended by a vast number of financial experts.


Yet many Americans could be one emergency away from an empty bank account. While the idea of paying into an insurance policy every month may seem perfectly natural, many people might think of an emergency fund as unnecessary. It may even feel as though an emergency fund is the result of negative thinking, such as unneeded worry over losing your job. However, an emergency fund is intended to reduce worry.

By saving enough to cover a few months’ worth of expenses, you can help ensure you are better equipped to deal with any emergency. The act of saving enough money for this can seem daunting, but by prioritizing your emergency fund you may find it easier than you think. The savings tactics you put in place to do so may even enable you to continue saving more effectively even after your fund is completed.

Understanding the Purpose of Your Emergency Fund

Typically, your emergency fund will be based around your monthly income and expenditures. However, this does not mean it is only intended to be used if you become unemployed. Any emergency might benefit from extra funds. This could include medical emergencies, if you have bills exceeding your insurance coverage, or you may need extra money to deal with car or home repairs.

When planning the potential purpose of your fund, take a moment to think through what you may consider to be an emergency, and how you would manage your finances in each event. Write down the potential amount you may need to spend on any emergencies. You can use these amounts to help you determine your overall savings goals.

Determining Your Goals

The first step in saving for your emergency fund is establishing how much it will need to be. If you do not have a defined goal, it will be difficult to determine how much you should be saving every week or month. Keep in mind, an emergency savings fund is not the same as a retirement plan, which requires ongoing contributions. An emergency fund should be a set amount you save for until the goal is reached and topped off again after you have spent the money on an emergency.

Many experts recommend basing your total emergency fund on three to six months’ total expenses. In order to establish this amount, you will need to make notes of all of your bills, credit card payments and other spending. Once you know how much the fund should be in total, you will need to give yourself a date by which you intend to save it. Depending on your circumstances, this might be a few months to several years. It is important to give yourself a realistic time frame, but you should not stretch it out too much. A good area to work around may be between two to five years.

Once you know your total, and the deadline by which you should have saved it, you can determine your short-term goals. These might be set per week or per month depending on when you are paid, and when you pay your bills. Try to make these small, step-by-step goals as concrete as possible, writing them down in a plan you can use to track your savings. For example, if you need to save $12,000 over four years, you will need to put aside $250 per month.

Prioritize the Fund

Given the limited time frame, it is important to place a priority on saving for the emergency fund. You will need to consider what you may be willing to cut down on in order to afford your monthly or weekly contributions to the fund. More importantly, you should think of the emergency fund as being urgent. Even though you might not need it right away, the point of the fund is you have no idea when you will need it.

One of the most efficient ways to reach your goal is to put aside a special savings account for the fund. Use your monthly or weekly goals to set a direct deposit amount that will be automatically placed in the fund every month. Going back to the account every month and seeing the total amount grow over time can provide you with immense satisfaction.


Prioritizing the fund also means taking specific actions, such as putting any bonuses or windfalls you receive toward the fund until you have reached your goal. While you should still be able to treat yourself on occasion so as not to exhaust your commitment to your goals, the fund should come first. A helpful strategy for this is to reward yourself once you have reached a particular savings milestone, perhaps with a meal out or a special item of clothing.

Practical Steps for Saving

Putting aside even an extra hundred dollars a month can seem like an extraordinary task, particularly when you are already making an effort to live within your means. However, it is helpful to remember these measures are not long-term. Many can be useful for general budgeting purposes, but others only need to remain in place until you have your fund saved up. Consider using one of the following saving strategies:

  • Track your spending so you know exactly where all of your money is going. You might be surprised at the amount of money going toward unnecessary impulse purchases outside of your normal budget categories.
  • Address large budget items, such as bills. Many can be cut down by looking for alternative options, while others may turn out to be unnecessary, such as cable or a gym membership you do not use.
  • Take a second job, provided you have the time to do so. This can be short term position, held only until you have achieved your savings goal.
  • Restrict your spending by using cash instead of a card and delaying any purchases that may not be completely necessary until you have given yourself a day or so to think it over.
  • Look for deals such as sales before making any purchases or use coupons options if you are not already doing so.

Creative Ways to Build Up Your Emergency Fund

There are many ways you can “trick” yourself into building up your ailing (or non-existent) emergency fund. Use some of these creative ways to save more.


  • Place $5 bills in your emergency fund. Whenever you receive change back, each $5 bill goes to your emergency fund.
  • Sell used items online or in a yard sale, and then put the money into your fund.
  • Throw all of your loose change into a jar, then each month convert it to cash and deposit it.
  • Cut the cord temporarily. You could stash almost $100 bucks a month into your emergency fund with just that one temporary sacrifice.
  • Do a no-spend challenge with yourself where you specify how many days a month you will allow yourself to spend discretionary funds and which days you will sit tight. Put the money saved into your emergency fund.
  • Have a savings buddy. Work with your best friend or co-worker and see who can get to the goal faster.
  • Give up your daily latte. Over the course of a week, you could accumulate at least $25 in savings.

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