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Building an Emergency Fund for Those Just-In-Case Scenarios

As you work toward financial stability, one of your goals should be to build an emergency fund that will allow you to take care of unexpected expenses without damaging your overall financial state.

It may seem daunting to save money while you’re still paying off debt, but you don’t want to go into even more debt by having an emergency wipe out your progress toward becoming debt-free. You can save for an emergency fund and work toward becoming debt-free at the same time. Here are steps to building your emergency fund.

What is an Emergency Fund?

First, let’s take a few minutes to talk about what an emergency fund actually is. Essentially, it is money in a bank account that is set aside for unexpected expenses. For example, you might suffer an injury or come down with an illness that requires a deductible or copays. You would be able to dip into the emergency fund for that. Or you might find yourself needing car or home repairs that are necessary for you to be able to use your car or live under your roof. An emergency fund can also be used for those needs.

Having an emergency fund means that you won’t have to add debt to high-interest credit cards for expenses you can pay for in cash. If you’re trying to pay down debt in the first place, you don’t want to interrupt your progress by adding more to it. Setting aside money for unplanned bills can keep you financially stable and allow you to weather the hit to your finances.

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What an Emergency Fund is Not

An emergency fund is not a slush fund. It’s not meant for you to take money out of when you want to go on a ski trip with your buddies or buy that new computer that just came out. You must be diligent about using the money in your emergency funds specifically for emergencies. Otherwise, it’s just a savings account that might or might not have the necessary funds in it when you really need them.

It’s also not an account that you should be able to access easily. By this, we mean it should not be a checking account that allows you to write unlimited checks on it or use a debit card to access the money in it. It should be a savings account that requires you to withdraw funds in person or with a limited number of checks per month.

This will prevent you from using the money to pay your regular bills or other non-emergency expenses by making it more difficult to access the money. Of course, it should be easy enough to access in an emergency, though, so it shouldn’t be tied up in a CD or other long-term savings vehicle that will assess a penalty to you for taking it out early.

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Start with Small Savings Goals

Most financial experts recommend you have between three and six months’ of income saved for emergencies, but you don’t have to accomplish that amount right away. Your first goal should be doable, so perhaps start by having enough in savings to last you a month without income. If that’s too much, start with a week or two weeks. Once you reach your first savings goal, you can expand it to a larger goal and amount. 

Begin by determining how much money you have to spend each week on required payments (rent or mortgage, food, childcare, etc.). Then, aim to save that much each week (in addition to spending it) until you meet your savings goal. Essentially, you’re going to be doubling up on your payments until you reach your goal, which means you might have to cut out nonessentials to some degree.

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Commit to a Regular Contribution

Once you know how much you need to save for your emergency fund, you’ll need to decide how much to contribute to your fund so that you can reach your goal. Start with a relatively low amount so that you aren’t stressing your cash flow. Keep in mind, though, that the smaller the amount you contribute, the longer it will take to get the amount of money you want into your emergency fund account.

Take a look at your discretionary expenses and decide on one you can live without. It might be a daily coffee or a weekly lunch out, but whatever the amount is that you’d normally spend on your non-essential expense, contribute that amount to your emergency account. Decide how often you’ll make your contribution and commit to it so that it becomes a habit.

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Enable Automatic Deposits

Most employers offer automatic paycheck deposit these days and usually you can direct your paycheck to as many accounts as you want, in any amount that you want. So, set up a savings account specifically for your emergency money and change your automatic deposit to send your contribution amount directly to that account. You won’t even miss this money because you never had it in your hands to begin with. It’s one of the easiest ways to save money because you don’t count it in the money you have available to spend.

Don’t Over-Save for Emergencies

Once you’ve reached your ultimate savings goal of between three and six months of income, stop saving in that account. It’s serving its purpose of being available when and if you need it. You can now devote the amount you’ve been contributing to your emergency fund to further paying off debt or to another savings goal. If you do have to use any of the money in your emergency fund, be sure to replace it as soon as possible so that it’s kept at your predetermined level.

As you earn more money over the course of your career, consider increasing your emergency fund level so that more expensive emergency repairs and purchases are fully covered. This may require you to assess your emergency fund needs every year or so to make sure your savings are keeping up with your salary.


Saving for emergencies doesn’t have to be painful. In fact, it can work with your other savings and debt-free goals you’ve already set. And, once it’s in the bank, you can leave it to accrue interest until you need it.

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