How to build an emergency fund
Build an emergency fund in two stages: first a starter cushion about the size of one month's rent, enough for a car repair or a sudden flight home, then three months of must-pay bills. Keep it in a separate, insured savings account that is not linked to your debit card, fill it with an automatic transfer each payday, and refill it after every use.
About 15 minutes to learnTake care: injury or damage if careless
Mark it once you can do it without this page open.
How to do it
- Set the first goal: an amount about equal to one month's rent.
- Open a savings account at an insured bank or credit union, separate from your everyday account, with no debit card attached.
- Schedule an automatic payday transfer, however small, so the saving happens before the spending.
- Put unexpected money there first: a tax refund, a bonus, cash from selling something.
- Once the starter goal is met, raise the target to three months of rent, utilities, food, insurance and minimum payments.
- Decide now what counts: a car repair to get to work does, concert tickets do not.
- After you use it, pause other savings goals until it is refilled.
Stop and call a professional if
- You want advice on your own numbers: a fee-only financial planner or a nonprofit credit counselor can give it; this page only explains the terms.
Common mistakes
- Keeping it in your checking account, where it slowly gets spent.
- Waiting until you can save a big amount each month before starting.
- Using a credit card as the emergency plan.
- Dipping into it for planned costs such as holidays.
Quick self-check
Three questions. Your last score is kept in this browser.
Teach this to someone
A one-page sheet for showing a friend, a roommate or a kid: what to say, what to show, and one question to check it landed.
Teach: How to build an emergency fund
What to say
Build an emergency fund in two stages: first a starter cushion about the size of one month's rent, enough for a car repair or a sudden flight home, then three months of must-pay bills. Keep it in a separate, insured savings account that is not linked to your debit card, fill it with an automatic transfer each payday, and refill it after every use.
What to show, in order
- Set the first goal: an amount about equal to one month's rent.
- Open a savings account at an insured bank or credit union, separate from your everyday account, with no debit card attached.
- Schedule an automatic payday transfer, however small, so the saving happens before the spending.
- Put unexpected money there first: a tax refund, a bonus, cash from selling something.
- Once the starter goal is met, raise the target to three months of rent, utilities, food, insurance and minimum payments.
- Decide now what counts: a car repair to get to work does, concert tickets do not.
- After you use it, pause other savings goals until it is refilled.
When to stop and call a professional
- You want advice on your own numbers: a fee-only financial planner or a nonprofit credit counselor can give it; this page only explains the terms.
The check question
Ask: Your car needs a repair to get you to work. Is it an emergency fund cost?
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- Every skill in Money and Paperwork
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Last reviewed . First published .