Creating an Emergency Fund You Can Believe in
Learn how much you should have in your emergency fund and get tips on how to stash away enough savings to fill it up.
Having an emergency fund is great. Having an emergency fund that’s the right size to get through an unforeseen rough spot—even better. Having a plan for how to pay for routine expenses if you can’t work, or how to cover large unexpected expenses, can protect your financial goals and relieve so much stress.
How Much to Save
Everyone’s first question when starting to build an emergency fund is ‘how much is enough?’ A common recommended guidepost is to set aside enough to cover three to six months of all your expenses. Take into account factors that may impact how long you should plan for and what you should plan for, including dependents, vehicle and home condition, job and housing market, and potential medical needs. But start where you are—a small emergency fund is better than no fund at all. Even having just $1,000 saved could smooth an unexpected financial bump.
Four ways to fund the fund
Set up a dedicated emergency fund account separate from other accounts so you’re less likely to tap into it for non-emergencies and then grow it using these strategies:
- Set up automatic transfers from your checking to your emergency fund account. A $50 monthly transfer adds up to $600 per year.
- Deposit some, or all, of any tax refunds into your emergency fund.
- Review your checking account at the end of every month, and transfer some of any remaining checking account balance into your emergency fund.
- Dedicate a portion of any income boosts, such as bonuses or financial gifts, to your emergency fund.
Now, leave it alone.
An emergency fund is for emergencies. Not vacations or investing. Save separately for retirement and major purchases.