Emergency fund: how much you really need and how to start today

Building an emergency fund is a crucial step toward financial stability. Whether you’re facing a job loss, an unexpected medical bill, or a necessary car repair, having a financial cushion can prevent short-term problems from turning into long-term setbacks.

Keep reading and find out how much you should save for emergencies.

What is an emergency fund and why do you need one?

An emergency fund is a separate pool of money reserved for unplanned expenses. It serves as a financial buffer, reducing reliance on credit or loans during tough times. This fund is not for planned expenses or discretionary spending — it’s for true emergencies.

Common uses for an emergency fund include:

• Job loss or reduced income
• Medical emergencies
• Major home or car repairs
• Urgent travel due to family situations

Have you used your emergency fund and need to rebuild it? Start now!

How much should an emergency fund be?

The recommended amount is typically three to six months’ worth of essential living expenses. This includes rent or mortgage, groceries, utilities, transportation, insurance premiums, loan payments, and childcare.

If that seems overwhelming, aim for an initial target of $500 to $1,000 and increase it steadily.

Quick emergency fund estimation table

Monthly Expenses	3-Month Fund	6-Month Fund
$2,000	$6,000	$12,000
$3,000	$9,000	$18,000
$4,000	$12,000	$24,000
$5,000	$15,000	$30,000

Where to keep your emergency fund

Your emergency savings should be secure and easy to access. Avoid keeping it in your main checking account or tying it up in risky investments.

Recommended options include:

• High-yield savings accounts (ensure FDIC insurance up to $250,000 per depositor)
• Money market accounts with FDIC coverage
• No-penalty certificates of deposit (CDs)—note that traditional CDs may charge fees for early withdrawal

Avoid storing large sums in cash due to the risk of loss or theft. Also, do not use investment accounts or retirement funds, which may carry penalties or market risk.

Interest earned on emergency savings is subject to federal income tax.

How to start building your emergency fund

Start with a manageable amount and contribute regularly. Even $25 or $50 a week can add up. Most banks offer automatic transfer options that help you build savings without thinking about it.

Ways to grow your emergency fund more quickly:

• Set monthly savings targets
• Allocate tax refunds or work bonuses
• Cut non-essential expenses
• Sell unused or unwanted items

Emergency fund vs. other savings goals

Separate your emergency fund from other goals such as vacations or a home down payment. Each purpose should have its own account to avoid accidental use.

Prioritize your emergency fund before pursuing other financial goals. Once fully funded, maintain it by replenishing after any use. Then, you can shift focus to investing and other plans.