How (and How Much Money) to Save in Your Emergency Fund

Having emergency savings is the first step towards financial strength. Learn expert savings tips to boost your rainy day fund.

Do you ever feel like you’re one mishap away from serious financial trouble? Or perhaps you’re not the type to worry — even when you should. Either way, most people aren’t prepared. In a recent poll by BankRate, only 38 percent of respondents said they could handle a $1,000 emergency room visit or a $500 car repair.


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A “rainy day” fund is critical for you and your family, and throughout this guide, we’ll provide tools and knowledge to help you prepare for the unexpected. You’ll learn the following:

  • Why everyone needs an emergency fund.
  • How much you need in your emergency fund.
  • How to build your emergency fund.
  • How to invest your emergency fund.

Each section is loaded with tips, resources, examples, and action steps to make sure you have what you need to get started.

Why everyone needs an emergency fund

According to the Federal Reserve, 44 percent of people can’t cover a $400 emergency without selling something or borrowing money. You already know an emergency fund will cover your financial needs, but what about you emotional needs? The last thing you want during the stress of an emergency is to also feel panic, worry, regret or shame.

Maintain your financial independence

Maintain your financial independence

Keep you from going futher into debt

Keep you from going futher into debt

Protect your family from financial troubles

Protect your family from financial troubles

If you’re among those using a credit card as an emergency fund, consider this: The variable rate on credit cards in America, according to BankRate, has crossed 16.50 percent. Going deeper into debt isn’t a real plan, and the interest only makes the situation worse.

Imagine, instead, that you have $1,000 in the bank standing between you and calamity at all times. That would cover something like a leak in the radiator, a broken washing machine or emergency traveling. It would see you through without going farther into debt — just remember to restock those funds as quickly as possible.

Now that you’ve got the visual of a $1,000 savings buffer, what kind of peace of mind would that provide when the smoke starts billowing out of the car? If you’re married, how differently would that conversation go with your spouse?

That’s the power of an emergency savings account. It’s your first line of defense from marital strife over money, stress and anxiety about bills, and even bankruptcy.

Hello, savings. Goodbye, freak-out.

Action step:
Action step:

Start researching savings accounts today that you can dedicate as your emergency savings account. Our best tip is to open an account outside of your normal banking/checking account, so you won’t be tempted to spend the balance every time you log in. Set up automatic deposits into your emergency savings account and you won’t even notice that you’re saving!

How big does your emergency fund need to be?

After appointing a savings account that’s solely for emergencies, it’s time to break down your goals and face them one at a time.


Short-Term Emergencies

Your first goal is to cover unexpected expenses with a short-term emergency fund.

We recommend that most people start with at least $1,000. This would adequately uphold their financial stability from a smaller emergency, like an unexpected medical bill, but that varies from person to person. In a higher-risk situation (expecting a baby, significantly in debt, etc.), you need to save more.

Once you determine the amount you need, stick to it. That way, when emergencies do strike down the road, you’ll know exactly how much is required to replenish the fund.

Long-Term Emergencies

A long-term goal for emergencies is to save at least three months of living expenses. If you’re in a higher-risk scenario, like starting a new business or expecting a child, save at least six months.

Pro Tip:
Pro Tip:

No matter what goal you establish, set a deadline for it. There is a reason runners put on a burst of speed when they see the finish line. A deadline is a powerful incentive to finish strong.

How to calculate your living expenses

Living expenses vary from person to person, but getting a ballpark estimate will help you understand how much money you need to save. To calculate your living expenses, try this:

Calculate your monthly expenses. Take a look at your spending and make a list of all your monthly expenses. This includes things like rent or mortgage payments, utilities, medical bills, groceries, transportation, savings, debt repayments, etc. Then, use this basic equation for determining how much to work up to in your emergency fund:

1 month of essentials x 3 = Fully funded emergency fund

Action step:
Action step:

Use this free Emergency Savings Calculator via BankRate to calculate how quickly you can stockpile your emergency fund.

Ten ways to build your emergency fund faster

We’ve established why an emergency fund is so important and how much you need to save. Next, let’s unpack how to build your fund. In four words you need to: Spend less. Earn more.

Here are ten ways to start beefing up your emergency fund, fast:

  1.  Track it

All successful financial journeys start with a budget. Or, if you can’t stand thinking about budgets, consider it a map. This is how you’ll know you’re heading in the right direction.

Why is tracking your money so important? Only 41 percent of Americans use a budget according to a recent U.S. Bank survey, and, yet, the average household carries $132,529 in total debt. None of us want to take orders from our money or debt. We want financial strength and independence. A budget helps you spend money you have and avoid spending money you don’t have.

Once written down, track it using our budget tracker Illuminate®.

Pro tip
Pro tip

Pay yourself every payday (after your tithe), rather than paying your creditors first. Establishing a “save first” habit every month will make it a natural, healthy part of your life.

  1.  Don’t shop when you can swap

To cut back on shopping, try trading things you already own. Here are four swapping options:

  • ThredUp. Check out sites like ThredUp® to save on hand-me-downs you and your kids will actually like. Here’s a great article on savvy consignment shopping for kids clothes.
  • SwapaDVD. Do you have stacks of DVDs you never watch? Log onto SwapaDVD® and trade them. For a small trading fee, you can restock your shelves with fresh flicks. (If you prefer to read, check out PaperbackSwap® for books.)
  • Swap Parties. A trend in the world of the frugal is to throw a Swap Party®. Choose a theme like clothing, kitchenware, or baby items and ask your friends to bring along similar items to trade.
  • Bartering Services. Handy with a camera? Great at fixing things? A grammar whiz? These are all services you can offer instead of paying full price. In a recent survey conducted on Facebook, 80 percent of participants said they intend to or already have bartered a good or service to save money. Trading is alive and well — just remember the tax implications if you do begin bartering. Learn more here.
  1. Automate your savings

Ask your bank or credit union to transfer funds automatically from checking to savings every month. Or, automatically deposit a little from each of your paychecks. What you don’t see, you may never miss. Don’t have a savings account? Consider a high-interest or high-yield online savings account to grow your rainy-day fund faster.

  1. Save or adjust your tax refund

According to Business Insider magazine, the average tax return was $2,895 in 2018.

Here are two good ways to build your emergency fund using your tax refund:

  • Review your W-4 tax form to adjust how much money is withheld. This will enable you to place more of it directly into your emergency savings account throughout the year.
  • Commit to saving most or all of what you do receive toward emergencies.
  1. Slice and dice your food budget

It’s easy to overspend on food. With just a few simple adjustments, though, you can save thousands.

For example, try making your own pizza. Not only is it much cheaper, but you can substitute unique and healthier ingredients, and create a fun event for your whole family.

Kristen at The Frugal Girl put this idea to the test and discovered that it only cost her $1.87 to make one cheese pizza at home! Adding your own toppings will fluctuate your total, but even if you added half a bag of pepperonis to each pizza (est. $3.49 per 6 oz. bag), you’d save $657.28 every year by not ordering delivery.

Some other ways to save money on food are:

Meal planning. Try cheap meal ideas to save money at home this week

Meal planning. Try cheap meal ideas to save money at home this week

Packing lunches

Packing lunches

Skipping coffee shop cups and implementing a bring your own mug policy

Skipping coffee shop cups and implementing a bring your own mug policy

  1. De-stress for less

Instead of heading to the spa, try some basic yoga, stretching or meditation techniques at home. Do you really need that gym membership when you can run, hike and bike outside?

Remember, these sacrifices are temporary. The goal is an emergency fund that provides greater peace of mind for you and your family.

  1. Avoid markups

It’s alright to budget a little fun while you save for your emergency fund, but try to find the frugal alternative, especially when there are major price markups.

For example, before you head to the movie theater, consider the money you’ll pay in overpriced drinks and popcorn. Imagine what you’d save with a movie night at home — complete with a free DVD rental from the library, air-popped popcorn, and a couple sodas from the fridge.

Check out these other products with giant markups.

  1. Sell your stuff

One of the fastest ways to save that first $1,000 for emergencies is to have a sale. Here are several great options to try.

  • Garage Sale. Tips on how to boost your income. They range from having a multi-family sale, using a “free” box, and selling concessions on the side.
  • Online Sites. Most people are aware of Craigslist® and eBay® for selling their vehicles or furniture, but another growing resource is Facebook®. Search for garage sale groups in your city using Facebook’s search bar. Caution: Never meet buyers in a secluded area.
  • Amazon®. Get started listing your products to sell on one of the world’s most popular retailers.
  • Bookscouter®. Do you have old textbooks that are worth some cash? Price them on Bookscouter and see what they’d fetch.
  1. Launch a side hustle

Whether you want to add more money to your emergency fund, save for retirement or simply want more spending money, coming up with extra cash can be tricky. If your budget is already pretty tight, here area few ways to make a little money on the side.

  • Rent a room. Your vacant guest room could be a moneymaker. Websites like Airbnb® and VRBO® can help you rent out your extra space to vacationers and travelers looking for a place to stay.
  • Get paid to drive. If you have some extra time and a reliable vehicle, get paid to be your own taxi service through companies like Uber® and Lyft®, or deliver food through DoorDash® and BiteSquad®.
  • Make money online. Companies like UserTesting® and UsabilityHub® pay you for offering thoughtful reviews of websites. Upwork® is a marketplace for freelancers of all types, and has payment methods that guarantee you get the money you deserve when the work is done. Mechanical Turk® is a website run by Amazon where you get paid for performing quick, simple tasks online. Granted, it’s only a few cents per task, but with some practice, you could make a nice chunk of change. You could also become an Etsy® seller or teach an online course via Udemy® or YouTube®.
  • Do chores or home repairs. People with too little time and a little extra money will pay you through TaskRabbit® for your help with chores like cleaning, grocery shopping or home repairs. Also spread the word among family, friends and neighbors.
  • Pet sit or house sit. Reliable people to watch some of the things we cherish most are few and far between. Money-making opportunities await if this kind of work suits you. Check out websites like TrustedHousesitters®House Sitters America® and Rover® to get connected with people in need of dog-sitting and house-sitting resources.
Action step:
Action step:

Brainstorm your fields of interest, then begin researching a side hustle that fits your skill set.

  1. Get on the same page with your spouse

Make sure you and your significant other are on the same page about the importance of saving for emergencies and how much you both want to contribute.

How to invest your emergency fund

What should you do once your short-term emergency fund is at $1,000?

What should you do once your long-term emergency fund reaches at least three to six months of living expenses? There are a few things depending on your financial goals. Some options to consider include:

  • Making smaller payments into your emergency fund and focusing on diverting extra money into your retirement account. If your company’s 401k offers a match, make sure you’re signed up for it. You could also consider opening a Roth IRA. Roth contributions are “after-tax,” which means you pay taxes on the contributions you make now, rather than when you withdraw the money. This type of retirement account can help reduce your tax risk as you retire.
  • If you’re on track with your retirement account, and your debts are paid off, consider playing around with other investment options, like the stock market. “The first question you need to ask yourself is, ‘When do I need to spend that money?’” says Manisha Thakor, founder and CEO of MoneyZen. “My rule of thumb is investing in something you do for the long run, which I would define as a minimum of five years and ideally ten-plus years. Once you are sure it’s long-term money, now you’re ready to really get into the nuts and bolts.” You can get a feel for how investing work with sites like acorns® and Betterment®.