How to build emergency savings — even on a tight budget
Learn how to build emergency savings, reduce financial stress, and stay prepared for unexpected expenses.
Emergencies, like an unexpected repair, sudden illness or accident, or job loss, can create fear and uncertainty, reminding us about the importance of having emergency savings. While emergencies can’t always be avoided, emergency savings can take some of the financial stress out of dealing with these unexpected events.
What are emergency savings?
Emergency savings represent money set aside to cover or offset the expense of an unforeseen situation. Creating an emergency fund is different from saving for college tuition, vacation, or a major purchase. Instead, this fund serves as a safety net, only to be tapped when an emergency or unexpected event occurs.
Emergency savings are meant to be used when:
- It is an essential expense, not optional
- It cannot be covered by regular income
How much in emergency savings should I have?
While the size of your emergency fund will vary depending on your monthly expenses, a good rule is to have savings for at least three to six months’ worth of expenses. This includes expenses for housing, utilities, food, transportation, and other essentials. You may also want to consider adjusting the amount based on your bill obligations, family needs, job stability, or other factors.
If saving several months of expenses feels overwhelming, start small. Consider an initial goal of saving enough to cover your most recent unexpected expense, then gradually increasing your savings over time.
How do I get started with emergency savings?
Emergency savings should be kept in a safe, easily accessible account, such as a bank savings account.
Here are some simple tips to get started:
- Review your expenses: Look at your spending plan and figure out how much you can save. Creating a budget can help you manage your expenses and plan for saving a certain amount each paycheck. You can get started with this budget worksheet from the Federal Trade Commission.
- Commit: Set an emergency savings goal and commit to it. Even a small amount of initial savings can make a difference.
- Boost: If you receive a tax refund, bonus, or other extra income, consider allocating a portion towards your financial goals, including emergency savings.
- Stay on track: Remember your financial goals to avoid spending leaks and other spending weaknesses.
When can I use my emergency savings?
The goal is to use your emergency savings only for an emergency, such as essential home or car repairs, urgent medical expenses, or a loss of income. When you have to take money from this account, it’s important to start rebuilding it as soon as you can.
Resources for creating an emergency savings fund
The Get Money Ready website has all of the materials you need to help you succeed financially. The following topics can help you get started on your financial education journey.
Debt: Being able to borrow money when you need it can give you financial flexibility. Be sure to carefully balance your credit and debt load.
Goal setting: Strong financial know-how can help support your goals, your family, and your future. Learn about budgeting and more.
Money management: Managing your money is important. While there’s always something new to learn or try, there are also simple and practical tips that you can apply today.
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Keep the momentum going
Try Get Money Ready Coach to turn your savings goals into an action plan.
