How To Build an Emergency Fund in 5 Simple Steps

Life is unpredictable. Appliances break, cell phones die, and your car is making that weird noise again. When costs pop up, you may be tempted to reach for your credit card.

But not if you have an emergency fund.

An emergency fund helps you cover unexpected costs without borrowing — which only adds to expenses. It provides a financial buffer for all of life’s surprises. Luckily, building an emergency fund is easier than you might think.

What Is an Emergency Fund?

An emergency fund is a savings account for unplanned emergency expenses. These financial emergencies can include medical bills, a loss of income or a necessary home repair. Unfortunately, 56% of Americans don’t have the savings to cover a $1,000 expense.

Without an emergency fund, most people rely on loans or credit cards. But debt comes with interest, which increases your overall costs. With the added costs, debt can become difficult to repay.

Most experts recommend building an emergency fund with enough savings to cover three to six months’ worth of living expenses. While ideal, this number is just a target. Every little bit helps. Even if you’re only able to save a couple hundred dollars, that money can be a lifeline when you’re in a pinch.

How Long Does it Take to Build an Emergency Fund?

The time it takes to build an emergency fund depends on you — your savings goals, what you can afford to contribute and how often.

You’re not going to build your ideal emergency fund overnight. However, with patience and consistency, you can accrue emergency money — and sometimes pretty fast.

So while you might have a goal to save a certain amount, it’s important to remember that everything you save along the way gives you that much more of a financial buffer. Small expenses can knock you off course as much as large expenses if you don’t have savings to cover them. But if you do, you can take them in stride. That’s why an emergency fund of any size is far better than no emergency fund at all.

5 Steps to Build an Emergency Fund Fast

If you’re ready to start building an emergency fund today, follow these five steps:

Step 1: Set a Savings Goal

It’s important to set achievable personal finance goals. Otherwise, you’ll get discouraged and give up altogether.

Start with a realistic goal based on your unique financial circumstances. Maybe you aim for $1,000. Or, if that’s too daunting, try $500. Or an even smaller short-term goal.

Even if you’re not starting with a lot of money, you’ll make progress by consistently setting some aside. Remember: every bit helps.

Step 2: Examine Your Monthly Budget

Take a look at what you’re spending money on and where you can afford to cut costs. To be clear, we’re not forcing you to give up the non-essentials that bring you joy (like a fancy coffee or pastry every so often).

Instead, look at your recent credit card statement and observe your spending habits with a critical eye. What are you really using each month? Is there anything you can cut?

One good way to identify expenses to trim is by separating “wants” from “needs.” “Needs” are essentials — things like food, shelter and clothing. “Wants” are the things that are nice to have but not critical — streaming subscriptions and dinners out, for example. “Wants” can be cut to save money, so make a list of the ones that appear in your credit card statement.

Step 3: Try Savings Strategies

Saving money requires a shift in mindset. Similar to goal-setting, the key to a successful savings plan is to know yourself and be realistic. Begin with “wants,” then look for ways to reduce “needs.”

So which “wants” are at the bottom of your list? Consider how your monthly subscriptions stack up: streaming services, gym memberships, Amazon Prime, etc. Consider how often you utilize them. Unsubscribe from a streaming service you barely use, or keep all your streaming services and do away with cable TV.

Now turn to “needs,” because these can often be reduced too. Try shopping at a grocery store with frequent sales instead of a premium retailer. Make a shopping list to prevent overspending. Also, the cliché is true — don’t shop while hungry! You’ll end up making impulse buys and racking up your total at checkout.

Another money-saving tip is to look for ways to reduce your monthly bills. Can you switch to a less expensive cell phone plan? Or cut the landline phone instead? You can also lower your electric bill by being more energy efficient (there’s more to it than just changing light bulbs). You can even hack your thermostat to save money.

Step 4: Prioritize Your Emergency Fund

Take these measures to ensure you put the extra money towards your emergency fund. Prioritizing savings — and adding to your emergency before you add to your checking account — requires discipline. But there are a few tricks that can help as well.

Automatic payments. You can set up a recurring transfer through your bank to move funds from your checking account to your savings account automatically. This way, you can put money toward your emergency fund without thinking about it.

Additionally, see if you can split your direct deposit paycheck between a checking account and savings account.

Watch out for overdraft fees, however. Setting up email or mobile notifications through your bank can help you avoid overdrafting your bank account.

Take advantage of one-time savings opportunities. There are times of the year when we receive extra money. Birthdays and holidays often come with cash gifts, and tax season usually brings a tax refund.

Take advantage of these opportunities by putting some (or all) of this extra cash into your emergency fund.

Step 5: Monitor Your Progress

Online banking has come a long way. You might find that using a budgeting app to keep track of your financial goals can actually be fun. Plus, you can take advantage of cash back deals to save even more money.

Check your emergency fund often, and find a way to celebrate your progress — without making a large purchase.

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