How to Build an Emergency Fund: 9 Things to Know 

The biggest reason to build up an emergency fund is to create financial security in the event of a job loss or other financial crisis. As a result, many personal finance experts recommend building up an emergency fund that can cover 3-6 months of living expenses.

Depending on your financial situation, you might feel comfortable at the lower end of that range, or you might want to build up to six months of living expenses or even more. If you work in a volatile industry, for example, or are self-employed and don’t have the typical safety nets of unemployment to turn to, a larger emergency fund might provide more stability and alleviate your financial stress.

If that dollar amount is making you go faint, don’t worry. While a larger emergency fund increases your financial security, even a small emergency fund can offer crucial relief when unexpected bills crop up. Focus on saving what you can in the short term, and make a plan for growing those savings over time. 

Ready to grow your savings? Here are nine tips to help you build toward savings success.

1. Set an emergency fund savings goal.

How much money do you want on hand in an emergency fund? If you’re committed to saving enough money to cover 3-6 months of living expenses, you’ll likely need to come up with a long-term savings plan that uses monthly contributions to build up those funds.

You might also opt for a smaller amount that you can fund faster and with less financial strain. Regardless of the amount you choose, this goal amount is the first step in figuring out how long it will take you to save toward that goal.

2. Overwhelmed by the task of saving? Start small.

Struggling to cover your bills as it is? Every little bit counts. Even saving $25 per month can add up to real savings over time — and if your financial situation improves and you’re able to increase how much you’re saving in the future, you’ll be that much closer to your goals.

No matter how much you’re able to save, every contribution to an emergency fund is progress. You might be surprised how quickly that money can add up and how much of a difference even a few hundred dollars can make for your financial stability.

3. Treat emergency fund savings like a bill.

If you don’t trust yourself to stick to a voluntary payment plan, it often helps to make emergency fund contributions at the same time you’re paying your monthly expenses rather than waiting until the end of the month and finding out that you don’t have any money left to set aside.

For individuals who have a habit of spending whatever is available in their checking account, this savings strategy acts as a hedge against their spending impulses. If you have success with this approach, you can expand its use to include other savings goals and investment contributions.

4. Automate contributions to stay on schedule.

Do you lack the willpower to make contributions on your own? Set up automatic contributions to take the guesswork and temptation out of your savings plan.

Even when prioritizing savings as a bill, you’re still faced with the temptation of not making that payment and pocketing what you would have placed in your emergency fund. Some people struggle to set these habits on their own, so an automatic payment helps guard against your worst intentions while keeping your savings on track.

5. Create space for saving by scaling back your budget.

If prioritizing savings doesn’t help you build up your emergency fund, you might need to carve out space in your budget to accommodate your new savings goals. 

Look for opportunities to scale back discretionary spending such as for dining, entertainment and shopping, and commit those freed-up funds to your emergency fund. You might even consider temporarily scaling back on some of these expenses. Cut out discretionary spending to prioritize contributions to your emergency fund, and plan on resuming that spending once you’ve gotten a jump-start on saving.

6. Put your emergency fund in an interest-bearing account.

Setting money aside for an emergency fund is an important first step — but don’t just let it sit idle. Find a savings account or money market account that will pay out interest dividends on your money.

While many of these accounts pay out nominal dividends on your investment, the earnings can add up over time. Since these accounts are usually free, the earnings count as free money to increase your financial security.

7. Increase the size of your emergency fund as your living costs increase.

Emergency funds should always be proportionate to your current living costs, which will likely change over time. If you set up an emergency fund when you’re single, for example, you should increase the size of your emergency fund as you have children, buy a more expensive home, take on a larger car payment and see your overall living expenses grow.

By adjusting your emergency fund to your living costs, you can enjoy the same financial stability even as your income and montly expenses rise.

8. Hit your emergency fund goal? Switch your savings over to other financial goals.

Once you reach your emergency fund savings goal, take the amount you’re saving and apply it to other goals. Whether it’s buying a car, affording a down payment for a house or even taking a vacation, you can ride the momentum of these strong savings habits to achieve even more.

9. Don’t forget about other ways to improve your financial security.

While an emergency fund is the cornerstone of financial security for any household, you can also take advantage of other opportunities to improve your security through prudent financial decisions.

For example, many consumers prefer to place money into nonretirement investment accounts that can be quickly liquidated if you need money in the future. Access to this money can provide additional security while allowing you to grow your initial investment faster than through savings or similar interest-bearing accounts. As the size of these accounts increase, so does your overall financial stability.

Consumers might also be interested in opening home equity line of credit (HELOC) accounts with their credit union. This account essentially gives you access to your home’s equity in the form of a cost-effective line of credit. You only pay interest when you borrow money from this account.

By setting up a savings account or money market account, any consumer can start building up an emergency fund that offers an extra layer of security to handle unplanned expenses, a loss of income or another major financial event. Start investing in your financial security. Open a savings account today.