Building an Emergency Fund & Preparing for Unexpected Expenses

How Much Should You Save in an Emergency Fund?

Before we get into the nitty-gritty, let’s talk numbers.

How much cushion is enough?

That answer depends on a few factors—what your monthly expenses look like, whether you have kids, and your outstanding debts. But the general rule is to save enough for three to six months’ worth of expenses.

The key word here is expenses. It’s not about having enough to replace your salary; it’s about covering everything you'd need to pay for for several months.

So, if you typically spend around $3,000 a month, then your emergency fund should be anywhere from $9,000 to $18,000. That way, if unexpected expenses come up or you lose your job, you’ll have a decent chunk of change to cover at least some of the costs or stay afloat while you look for work.

Depending on your situation, you may need more or less than the above examples, but don’t let the numbers scare you. Even a small emergency fund is better than none, and with the tips and strategies below, you’ll have a clear path to building a buffer to protect yourself and your family when life happens.

Where to Save Your Emergency Fund

Your emergency fund won’t be very useful if it’s not easily accessible. It’s for emergencies, after all.

So, set it up so that there are as few hoops to jump through as possible to access your money. For example, you don’t want it tied up in investments, as your funds will no longer be liquid and may depreciate quickly, given the nature of the market.

At the same time, since it’s a form of savings, you’ll want to have your emergency fund in an account that appreciates over time.

In terms of earnings, high-yield savings accounts are your best bet. These accounts include much higher annual percentage yields (APYs) than regular savings accounts—up to 5% or more—while keeping your cash liquid for quick and easy access.

How to Build an Emergency Fund

Now that you know where to begin, you can use the strategies below to start building your financial safety net:

1. Set Your Goal
   Based on your monthly expenses, sit down and calculate how much you need to save to make it three to six months without any additional income. Again, don’t let the number keep you from getting started. This process takes time, and you can work toward your goal at whatever pace is best for you and your financial situation.
   
   
2. Build a Budget Around Your Goal
   With your ideal emergency fund in mind, break it down and decide on a realistic amount you can save weekly, bi-weekly, or monthly. This may mean you’ll have to cut back on shopping, eating out, ordering in, etc., for some time, but the tradeoff is well worth it.


3. Start Small if You Need to
   The last thing you want is to put yourself at financial risk by saving for your emergency fund. There’s no need to rush. Even if you can only commit $50 a month, that’s better than nothing, and watching your account grow over time will become a valuable source of motivation.


4. Automate Your Emergency Fund Savings
   A simple and reliable way to save consistently is to set up automatic transfers from your checking to your emergency fund account. That way, saving will become an effortless habit, and you’ll be less likely to spend the extra cash before you move it into your fund.
   

Tips for Maintaining Your Emergency Fund

You’ll need the same level of discipline to maintain your fund as you will to build it. But as long as you follow the three essential tips below, you’ll keep yourself on the path to success:

1. This might sound like a no-brainer, but throughout the process, it’s crucial to avoid pulling money from your fund for anything other than emergencies. Otherwise, unexpected expenses can leave you financially unstable or in debt, which defeats the whole purpose of building an emergency fund!
   
   
2. If you do end up withdrawing money from your emergency fund, be sure to replenish it as soon as possible, as you never know when unexpected expenses might come up.
   
   
3. Finally, as your financial situation changes, you may need to go back to the drawing board. If you take on new expenses, welcome a new member into the family, or take out a new loan, you’ll want to set a new goal (and budget) for your emergency fund that takes these factors into consideration.
   
   

Standing at the bottom of the mountain and looking up, building an emergency fund can seem daunting. But if you take it one small step at a time and apply these methods along the way, you can create that much-needed financial cushion and enjoy the peace of mind that comes with it.

Let the Money Max Account Do the Work for You

If you’d rather let a trusted debt elimination software track your cash flow and do all the calculations for you, fill out the form below to learn about the Money Max Account.

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Based on your financial situation, the Money Max Account calculates the fastest route to achieving your goals and gives you step-by-step guidance along the way. Using advanced algorithms, it identifies and tells you how to redirect every idle dollar in your accounts for maximum impact.

As you move through life and encounter unexpected expenses, the system automatically recalculates to keep you on the fast track to building an emergency fund and reaching your monetary milestones. All without having to make drastic changes to your current lifestyle.

After you submit your form, one of our debt elimination experts will reach out to set up a free debt analysis consultation. During your consultation, you’ll discover how the Money Max Account works, how much time, money, and stress it can save you, and how easy it is to build wealth with the program.

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