Life happens. And when it does, it often costs money. Whether it’s a broken appliance, car repairs, or even a lost cell phone, having an emergency fund to cover the cost can help keep you from racking up credit card debt or being unable to pay unplanned bills. Unfortunately, half of U.S. adults don’t have a stash of cash to buffer them against life’s unpleasant surprises.1 If you’re in this group, it can be beneficial to start working on your rainy-day fund today.

How much should I save?

How much you need depends on your family size, whether you own or rent your home, and the number of cars you need to keep in working order. Overall, shooting for $2,400 in quickly available cash is a reasonable starting point, but your needs may be different. This assumes you have some basic insurance in place, including:

  • Life insurance for any family members whose earnings you depend on.
  • Health insurance.
  • Homeowners/renters insurance.
  • Auto insurance.

To build up a buffer for more extensive emergencies such as losing your job, you can save in your 401(k) plan. You want to make sure you capture all of the employer matching contributions available to you.

Start small.

Expecting to build a large emergency fund quickly isn’t realistic. But any amount is better than nothing! $1,000 in reserve could help you get through a few small bumps that otherwise might require you to use high-interest credit cards and go into debt. Begin by setting small, achievable goals. For example, your first goal could be to accumulate $500. Once you have that much in the bank, increase your goal amount to $750 or $1,000. You’ll be surprised by how quickly it will all add up, even if you’re adding money bit by bit.

Free up cash by cutting expenses.

Monthly expenses. Take a look at the bills you’re paying each month and consider what you could reduce or eliminate. For example, do you have both Netflix and cable/satellite TV? You could cancel the service you use less often and redirect that money to your emergency fund each month. Similarly, do you have a gym membership that’s gathering more dust than sweat? Consider cancelling that as well — especially since there are a variety of exercises you can do for free at home (or outside with a pair of sneakers!) to improve your fitness. In addition, look at other insurance policy options for your home or car. Even if you only save $10 per month by switching providers, you can put that money in your emergency fund, and watch it grow over the months and years.

Incidental costs. Do you stop by a coffee shop most days? Do your daily meals often involve eating out or ordering in? If the answer to either of those questions is yes, you have an opportunity to change your habits and redirect that money into an emergency fund. Revamp your routine to brew your own morning coffee, bring your lunch to work, or just commit to one less meal out per week. Once again, the money you’ll save from these small changes can add up over time.

Make a plan, and start saving.

Like any savings plan, you should identify your end goal, start small, and save consistently. Here are a few tips:

  • Set a monthly target. Take a percentage of each paycheck and have it automatically deposited into your emergency account.
  • Allocate extra cash. Resolve to put all or part of any extra income, such as a tax refund, a bonus, or gifts from grandma into your fund.
  • Earn extra income. Get a part-time job, find contract work, or look for other ways to supplement your income on a short-term basis while you get your emergency fund in place.

Keep it safe, and keep an eye on it.

The whole point of an emergency fund is for it to be available at a moment’s notice, since emergencies rarely give you any warning. Generally, that means keeping your money in a savings account at a bank.

The downside of this tactic is you’ll earn very little interest on your money in a low interest-rate environment. In fact, it’s likely that rising expenses and inflation may cause your emergency fund to lose buying power over time. You may need to keep topping it off as the years go by to maintain your target balance.

For this reason, make sure you don’t save too much in your emergency fund. Think of it like an insurance policy. You may never use it all so there’s no reason to over-fund it when you can put extra money to better use in a retirement fund or other higher-earning investments.

Financial protection against the unexpected.

If life throws you a curve, you don’t want to max out your credit cards, drain your retirement plan, or sell investments to cover expenses. Having an emergency fund can give you flexibility and relieve some stress when the unexpected happens. The key is a willingness to sacrifice a little today for more security tomorrow.


(2017). 2016 FINRA National Financial Capability Study. Financial Industry Regulatory Authority. Retrieved May 4, 2017, from