How to start building an emergency fund

Saving for emergencies is an important part of good financial health. But setting aside an emergency fund amount that equals several months of living expenses can be intimidating, especially when your budget is tight. This guide can help you build a cash reserve—and gain greater financial security and peace of mind.

How much should I have in my emergency fund?

The typical approach is to think in terms of monthly living expenses and aim for a fund that covers at least three months. If you’re supporting a family, shoot for nine months. The goal is to have money to fall back on for a while if you lose a source of regular income or face a large, urgent cash need.

Another approach is to think about unplanned expenses you’ve had in the past—car repairs, for example—and use those amounts as an initial goal.

Either way, don’t let the dollar figures paralyze you. Any emergency savings is better than none. What’s important is that you’re saving, reducing the chance that you’ll have to take on debt in an emergency.

How do I start an emergency fund?

The first step is to include building an emergency fund into your budget. Instead of focusing on the total amount you want in your emergency fund, break it down into smaller chunks that you can reasonably achieve each month. You’ll be surprised how fast your fund will grow.

Then take a look at your spending to free up money to increase your emergency fund contributions. Everyday savings can add up. Identifying a specific expense to reduce is more effective than making a general resolution to “save money.” You can change your overall behavior—if you start small and be specific.

Other ways to build your emergency fund include:

Contributing all or part of any tax refunds, bonuses or cash gifts.

Setting up automatic transfers from your checking account.

Depositing part of your paycheck directly into the fund each pay period.

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