Emergency Saving Fund

An emergency fund is a safety net that can help you cover unexpected expenses without breaking your budget or taking on debt. Emergency savings are meant to be kept separate from your other long-term savings goals and only used in case of an emergency.

Consider these tips to help you build your emergency savings fund.

Budgeting for an Emergency Fund

Setting aside cash for unexpected events is essential for long-term stability and can also give you peace of mind.  The rule of thumb is to save at least three months of living expenses in an emergency savings fund—better if you can save six months. The amount of emergency cash you should budget for depends on your lifestyle, committed expenses, household size, and income.

How much emergency cash do I need?

Here’s a simple way to determine how much emergency money you should put aside.

Step 1: Figure out the total necessary expenses you pay each month

Add all your expenses, including your rent or mortgage payment, utilities, car payments, gas, groceries, phone bill, and any other necessary monthly payments.

For this example, we will assume $2,000 a month of expenses.

Step 2: Pick the number of months you would like this emergency fund to cover

While saving for six months of emergency funding is best, we’ll use three months for this exercise.

Step 3: Choose how long it will take you to fund an emergency savings account

For this example, we want to reach our emergency money goal in three years.

Step 4: Do the math

$2,000 * 3 = $6,000 emergency cash needed

3 * 12 = 36 months to fund the savings goal

$6,000 / 36 = $167 monthly contribution  

In this example, you need to save $167 monthly for three years to have $6,000 in emergency savings. It’s wise to save the money in a separate account to avoid the temptation of dipping into it.

Here are a few safe options for storing emergency money.