Why Everyone Needs an Emergency Fund

Everyone needs an emergency fund. An emergency fund is money that is set aside specifically to cover unexpected events.  This money is meant to keep you financially stable through a crisis. It should be treated differently than the rest of your money in savings and checking.  These dollars have a very different purpose and place in your budget.  Here are some reasons why you should make this a priority even if you have a steady job or a lot in savings.


What makes an emergency fund special?

Even if you have a lot of money set aside in your checking or savings an emergency fund is still important.  Think about the money what’s left in your checking account after paying the bills.  You may consider this “spending money”.  After all you use this account for everything from paying bills to buying pizza.  An emergency fund should be separate so it isn’t lumped in with your other spending money – in your bank or your mind.

The goal of this account is to have a back up plan when life throws you a curve ball. You should not feel comfortable spending this money the way you do the rest of your bank account.  It is a form of self insurance against going into (or further into) debt or bankruptcy.  I didn’t touch our emergency fund last year.  That is a good thing but I don’t see the money sitting there anyway as a waste.  Let’s face it, not every year is going to go smoothly.  With toddlers and pets, it’s a freaking miracle there wasn’t at least one expensive crisis.


Do you need one if you are broke already?

In short, yes. Now I completely understand how it feels when there isn’t a lot of money left to save. If you don’t make a conscious effort to start saving some of what you earn you will live your life in a constant state of crisis. I’ve been there and believe strongly that anyone who is there right now can escape it.

When you live paycheck to paycheck you are constantly paying other people before you pay yourself. This will not stop when you make more money because you are likely to “upgrade” your lifestyle accordingly. There are plenty of people with high incomes that would be completely screwed in a financial emergency.

Start thinking about yourself like an owner instead of an employee. The business is your life. Don’t forget that you are in control. You do not have to do the things or spend the amounts you “always” do. Don’t watch a lot of TV – cut back your plan and pay them less. Throw a ton of groceries away because you don’t like to cook? Cut how much you spend on groceries. Donating to a gym you never visit – they are fired. Unfortunately your student loans have tenure but you can try to get rid of them early. Your emergency fund is just another bill you need to pay to protect your future and the rent is due. Pay it.


How do you start an emergency fund?

To begin think about what amount of money is insignificant to you right now? If you would think nothing of spending $5, $10 or $20 on a whim use that as your starting point. Every week put that amount aside each week and forget about it. If you can set up your paycheck to automatically go to an account even better. It helps when you don’t have to think about it at all. Eventually this will add up and it is a painless way to get going. You can start with your bank or an online bank that might be a bit less accessible than sliding your money from savings to checking while you are in line at Target. A high yield savings account is a nice home for your emergency fund.

Expecting a bonus or tax refund? That could be a great way to quickly start your emergency fund. Most Americans could not get out of a $1000 crisis so if you do get your hands on that amount or more it makes a lot of sense to save it for a rainy day. Now if you were considering paying off debt with that money I would still encourage you to have some set aside. Keep some money available for an emergency fund and a separate plan to pay off your debt. The reason why is that you will just charge an emergency anyway if you don’t have the cash.

What is an “emergency”?

Christmas is not an emergency. You know when it is coming every year and can predict how much you spend. Routine medical expenses are not emergencies (read this for tips on how to save on those). Emergencies are unpredictable, emotional and often not insurable.

Certain events are unpredictable but insurable like fires or accidents. For example if you rent it is smart to get an insurance policy to cover your things. The building is covered by your landlord – not your stuff. If you don’t have insurance a fire in your apartment is a crisis instead of a claim. If you don’t have insurance or an emergency fund it becomes a go fund me page. Sadly, this is the way things are today unless you do something ahead of time. Hopefully starting an emergency savings goal now – even if it is small will help keep that from happening to you. A few month’s worth of expenses saved is ideal and it is OK if it takes you a long time to get there. The important thing is to get started and be consistent!


Let’s face it, even people with “safe jobs” like government employees have been going without paychecks for weeks now. Most of us rely on others for our financial stability whether it be employers, clients, social services or family. Starting an emergency fund can get help you gain control and avoid stress when you are faced with a crisis. I’d love for you to subscribe here to get your free budgeting checklist and see where you can find room in your budget for an emergency fund. Have you ever needed one? Let me know in the comments!
Scroll to Top