It takes discipline and planning to save. Saving means putting off using money today so you have money for future needs. An emergency fund is very useful in getting immediate needs met after a disaster.
Why should you start an emergency fund?
Savings are an important part of managing money and protecting a family. Two types of savings make up your emergency fund.
Set-aside savings: Money set aside for non-monthly, periodic expenses. Build set-aside savings into your monthly spending plan and keep that money in a designated savings account to draw upon when needed. It might be money to replace a broken appliance, repair a tire, or travel to a sick relative.
Emergency income savings: Money put aside to pay for essentials in case you lose your job or have a reduced income. Emergency savings are typically equal to 3-6 months of income which allows time for you to get back on track. This includes money for rent or mortgage, utilities, car payment, and car insurance. This money could prevent eviction or foreclosure, or car repossession.
People often do not save because it seems impossible to put enough money aside. It is still important to save on a regular basis so you have enough money for emergencies. Even a couple of dollars month can help you get started.
Getting started with an emergency fund
If you do not know your current budget, it may be hard to decide how much you can afford to put into an emergency fund. It will be helpful for you to first complete a Spending Plan. See Spending plan — Short form (PDF) (also en español).
If you already have a tight budget, there are two major ways for finding money to save:
Discuss options for cutting expenses and bringing in more income with your family. Once you have decided on some strategies to pursue, use Getting Started: What Can I Do? (PDF) to document:
How much you intend to save.
How you propose to find the money to save.
You don’t need a separate savings account to get started with saving. It may be in your best interest to set up an account at a financial institution for your emergency savings. In the event of a disaster, you'll need to access your emergency fund. If you’ve been keeping that in a jar in your house, your fund could be destroyed during the disaster. Also, by keeping your emergency fund in an official savings account, you may be able to earn interest and grow your fund over time.
Pay yourself first
Once you have a plan in place, remember to keep saving simple. Keeping it simple will increase your chance of success. If you completed a spending plan, make your emergency saving a priority on your spending plan. One method to simplify building an emergency fund is called “pay yourself first.” It means making savings a regular expense, just like the rent or mortgage. There are a couple of ways to make this happen.
Put a specific dollar amount or a percentage of pay directly into a savings account each payday. This eliminates having easy access to the money to spend before it gets deposited in an account.
Put loose coins from pockets or purses into a jar at the end of each day. When the jar is full, take it to the bank to deposit it into your emergency savings account. The money will add up quickly.
If you earn tips, put all tips into a jar. When the jar is full, take it to the bank to deposit it into your emergency savings account.
Put part of gift money into savings.
Anderson-Porisch, S. A., Heins, R. K., Petersen, C. M., Hooper, S. E., & Bauer, J. W. (2007). Dollar works 2: a personal financial education program (item 08503). St. Paul, MN: University of Minnesota Extension.
National Endowment for Financial Education. (2015). Disasters and financial planning: a guide for preparedness and recovery.
Smart About Money. (2015). 5 reasons you need an emergency fund — and how to create one.
Reviewed in 2023