• An emergency fund can help pay for unexpected expenses, like medical bills or job loss.
• Ideally, your emergency fund will cover at least three to six months’ worth of expenses. You can start with a smaller goal of $1,000 if money is tight.
• Automation is one of the best ways to start building your emergency fund.
• If you don’t make enough money to save for an emergency, you can try to negotiate your bills to cut costs or pick up a side hustle to increase your cash flow.

Building an emergency fund can safeguard your financial well-being. It ensures you have the money to pay for unexpected expenses without ending up in debt.

While creating an emergency fund might not be the most exciting financial goal, you’ll be grateful you have money saved if you end up with a bill you weren’t anticipating. Here’s what you should know as you start saving for a rainy day.

What Does an Emergency Fund Cover?

An emergency fund helps pay for unexpected expenses. For example, maybe you get laid off and don’t have the income to pay your bills. Or, maybe you get into a car accident and have medical bills. Whatever the emergency is, this money ensures you won’t end up in financial ruin. 

Certain expenses, like car repairs, might feel like financial emergencies. Some people may use their emergency fund if their vehicle breaks down, but car maintenance is an expected expense. While you don’t always know exactly when it will happen, it’s part of owning a vehicle.

Having a separate car maintenance fund in your budget can be helpful for expenses like these. This strategy ensures you don’t have to dip into emergency savings every time a tire needs replacing or a gasket blows.

How Much Money Should I Save in My Emergency Fund?

The traditional recommendation is three to six months’ worth of expenses. However, after the pandemic, some financial professionals started recommending a saving goal of at least twelve months’ worth of expenses. 

This may seem like a lot of money, but nothing beats the peace of mind that comes with knowing you’ll be okay for a while if your life situation unexpectedly demands a big pivot.

How Do I Start Building an Emergency Fund?

You can start building an emergency fund a little bit at a time. No amount is too small. While larger contributions will get you to your goal faster, you’ll be surprised how quickly $5 here and $15 there can add up when you regularly put money into your savings.

A great way to stay consistent is to not rely on your self-discipline alone. Many people have great intentions for saving money, but when things feel tight, savings often take a backseat to other goals. You might think, “I’ll do it next week,” but next week proves equally challenging.

It’s easy to avoid this by setting up automated transfers to savings in the Payactiv app. When you automate your saving, you’re delegating the burden to a computer, making it much more likely to happen.

You can also use tools like Goal-Based Saving to visualize your overall progress toward your emergency fund savings goal.

What if I Don’t Have Any Money to Save?

This is a real problem for many Americans. Between 33% and 80% of households feel like they live paycheck to paycheck. If you don’t have enough money for the here and now, saving money for three to six months’ worth of expenses can feel overwhelming.

Regardless, building an emergency fund is a worthwhile endeavor. Remember that you can start small. Sometimes, setting a goal of $1,000 is a good place to start. You can work towards it incrementally, even if it’s just $5 at a time.

Some common ways to reach this goal include negotiating your monthly bills so that you’re paying less, picking up a side hustle, or evaluating your current discretionary spending so you can find wiggle room in your budget.

After meeting your initial $1,000 goal, you can set your sights higher.

Final Word

Your emergency fund is a foundational building block for financial success. Life throws everyone curveballs. An emergency fund ensures you can handle them.

Start by setting aside small amounts of money and automating the savings process with the Payactiv app. As your emergency fund grows, you’ll feel the deep satisfaction that comes with taking care of yourself both today and in the future.

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