You can create a budget, plan your bills carefully and make responsible financial decisions.
And then your car breaks down.
The refrigerator stops working.
You have an unexpected medical expense.
Your work hours are reduced.
A family emergency requires an unexpected trip.
Or you lose your job.
Some expenses simply cannot be predicted.
What we can do is prepare for the possibility that eventually something unexpected will happen.
That's what an emergency fund is for.
An emergency fund is money you keep specifically for unexpected and necessary expenses.
It isn't your vacation fund.
It isn't money for holiday shopping.
It isn't money for an expense you knew was coming.
It's financial protection for situations you could not reasonably plan for.
Examples might include:
- Unexpected car repairs
- Emergency home repairs
- Medical or dental expenses
- Reduced work hours
- Job loss
- Emergency travel involving family
- An urgent pet expense
- An unexpected essential bill
Having savings doesn't make these situations pleasant.
But it can make them more financially manageable.
Instead of immediately reaching for a credit card, borrowing money or trying to figure out which bill you won't pay that month, you have something available to help absorb at least part of the expense.
That's the purpose of the fund.
You've probably heard advice saying that everyone should have several months of living expenses saved.
That can be an excellent long-term goal.
But if you're currently living paycheck to paycheck, being told that you need thousands—or tens of thousands—of dollars in savings can make starting feel impossible.
So don't start with several months.
Start with your first goal.
Maybe that's $250.
Then $500.
Then $1,000.
After that, perhaps you work toward one month of essential expenses.
Eventually, you may decide you want several months of expenses available.
You don't have to get there immediately.
The important part isn't how impressive the number looks.
It's gradually creating more protection between you and the next financial emergency.
People sometimes postpone saving because they believe they don't have enough money to make a difference.
But $10 saved is still $10 you didn't have before.
If you can save $20 each paycheck, start there.
If one month you can save more, add more.
A small emergency fund won't cover every emergency. But even a few hundred dollars can reduce how much you need to put on a credit card or borrow when something happens.
And those small amounts accumulate.
Twenty dollars may not feel significant when you transfer it.
But saving $20 consistently is very different from saving nothing because you were waiting until you could afford $100.
Progress doesn't have to be fast to be valuable.
This is one reason understanding your monthly budget comes first.
Once you know where your money is going, you may find small amounts that can regularly move into savings.
Maybe you cancel a subscription you no longer use.
Maybe you decide to spend $25 less in one category.
Maybe you receive overtime, a bonus, a tax refund or another unexpected amount of money and decide to save part of it.
You don't have to send every extra dollar to your emergency fund.
If you create a savings plan that's so restrictive that you don't want to follow it, you probably won't follow it for very long.
The goal is to create something you can continue.
Maybe right now that's $10 a week.
That's where you start.
As your circumstances change, the amount can change too.
One of the easiest ways to build savings is to remove the decision from your regular routine.
If your bank or employer allows it, consider automatically transferring a small amount into savings each payday.
When the transfer happens automatically, saving becomes part of your normal financial routine rather than something you try to remember at the end of the month.
Because the end of the month is often when there's nothing left.
Even a small automatic transfer creates consistency.
And if your financial situation improves later, you can increase it.
The important part is establishing the habit.
Emergency savings should generally be somewhere safe and reasonably easy to access when you truly need it.
After all, this isn't money you're saving for something decades away.
If your car breaks down tomorrow and you need it to get to work, the money needs to be available.
At the same time, keeping your emergency savings separate from the account you use for everyday spending can make it easier to leave it alone.
If it's sitting in the same account you use for groceries, restaurants and shopping, it can slowly become part of your regular spending without you realizing it.
Your emergency fund doesn't need to be exciting.
Its job is to be there.
This can become confusing because not every unexpected expense is necessarily an emergency.
There isn't one definition that works for every household, but before using your emergency savings, it may help to consider three things:
Is it necessary?
Is it unexpected?
Does it need to be handled now?
If your car suddenly needs a repair and you need that car to get to work, that may be an emergency.
If your refrigerator stops working and needs to be replaced, that may be an emergency.
If you need unexpected medical care, that may be an emergency.
But a vacation that costs more than expected isn't an emergency.
Holiday shopping isn't an emergency.
A yearly registration bill you knew was coming isn't an emergency.
This is where the distinction we discussed when creating a budget becomes important.
Some expenses don't happen every month, but they're still predictable.
Those expenses should ideally have their own place in your budget.
Your emergency fund is there for the things you couldn't reasonably see coming.
Then use it.
Sometimes people work so hard to build savings that spending the money feels like losing all their progress.
But if a genuine emergency happens, using your emergency fund doesn't mean your savings plan failed.
It means the fund did exactly what you created it to do.
Maybe you saved $1,000 and suddenly need $700 for an essential car repair.
Of course, seeing the balance drop to $300 can be disappointing.
But think about the alternative.
Without that money, you might have needed to put the entire repair on a credit card, borrow money or take money away from another necessary expense.
The $700 didn't disappear because you failed.
It protected you when you needed it.
Once the emergency passes, you begin rebuilding.
Maybe you can't replace the money immediately.
That's okay.
Go back to the same process that helped you build the fund the first time.
Ten dollars.
Twenty dollars.
Fifty dollars.
Whatever works for your circumstances.
The goal isn't to create an emergency fund and never touch it.
The goal is to have something there when life gives you a reason to need it.
There isn't one perfect emergency-fund number for everyone.
A household with two stable incomes may have different concerns than a household relying on one income.
Someone with an older home or vehicle may want more available for unexpected repairs.
A person with children or pets may have different potential expenses.
Someone whose income changes significantly from month to month may want additional protection during slower periods.
That's why your emergency fund should eventually reflect your life, not simply a number you saw somewhere else.
You can start with a smaller milestone and adjust your goal as your financial situation changes.
The important thing is to start.
An emergency fund obviously provides financial protection.
But it can also provide something less measurable:
breathing room.
When something unexpected happens, you already have enough to deal with.
The broken car still needs to be repaired.
The medical issue is still stressful.
Losing work hours is still frightening.
The family emergency still happened.
Savings can't remove those problems.
But it may remove one question from the situation:
“How am I going to pay for this?”
Maybe your emergency fund covers the entire expense.
Maybe it only covers part of it.
Either way, having something available can give you more options than having nothing.
And sometimes that's exactly what financial preparation is about.
Not controlling everything that might happen.
Giving yourself more options when it does.
You don't need to know today how you're going to save three or six months of expenses.
Start by understanding what you can realistically do now.
Use the free Chapter & Changes Budget Planner to see where your money is going and whether there is room in your monthly budget to begin setting something aside.
Then use our free savings tools to choose a goal and start tracking your progress.
Maybe your first target is $250.
Maybe it's $500.
Maybe it's $1,000.
Or maybe you're ready to begin working toward one month of essential expenses.
Your goal doesn't have to look like someone else's.
And if you'd rather have help putting everything together, Chapter & Changes also offers customized budget creation through Help Me Create It.
You provide information about your income, expenses, financial priorities and savings goals, and we can help organize that information into a personalized budget that includes room for the emergency fund you're trying to build.
The free tools are there if you want to do it yourself.
The customized option is there if you'd like help organizing a plan around your circumstances.
Either way, don't let the emergency fund you eventually want prevent you from saving the first few dollars today.
You don't have to be completely prepared for every emergency tomorrow.
You just need to be a little more prepared than you were yesterday.
Chapter & Changes provides budgeting and savings tools and organizational assistance for educational and informational purposes. Customized budgets are intended to help organize the financial information you provide and are not individualized financial, investment, tax or legal advice.