A Quick Guide to Your Emergency Fund


Wouldn’t it feel great to have a buffer between you and the curveballs life throws at you—a cushion that helps you sleep soundly because it turns a major life crisis into just a slight inconvenience? Even if your AC goes on the fritz in mid-July, you’re cool as can be. Why? Because you had your safety net in place!

And that little safety net is an essential part of the 7 Baby Steps. Say hello to the fully funded emergency fund, also known as Baby Step 3.

What is an emergency fund?

An emergency fund is simply money you’ve set aside for life’s unexpected events. We’re talking about true emergencies here, like a car wreck, a hospital visit or a leaky roof. Suddenly seeing that flat-screen television go on clearance or walking past a BOGO shoe sale doesn’t qualify as an emergency. Sorry, you guys!

If you have debt, I recommend saving a starter emergency fund of $1,000 first. Then, once you’re out of debt, it’s time to beef up those savings and build a fully funded emergency fund of three to six months of expenses.

The reason to have an emergency fund is simple: You don’t know what’s going to happen. And no one wants to live at the mercy of life’s twists and turns. Your emergency fund will come in handy if you suddenly lose your job or your HVAC breaks in the dead of winter. Don’t let yourself be caught off guard! You need that safety net between you and life. Believe me . . .


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When my husband, Winston, and I were newlyweds—we’re talking 30 days into marriage—I backed into a car in the post office parking lot. Was it just a little fender bender? Oh, no . . . the other car’s door was bent in the opposite direction and I felt terrible. The good news was, no one was hurt and we had insurance. The bad news was, our deductible was $1,000—and that was a lot of money for us. Thankfully, we had our starter emergency fund there to pull from, but if we hadn’t, a bad situation could have become much, much worse.

How big should my emergency fund be?

The more stable your income and household are, the less you need in your emergency fund.

If you’re part of a two-income household or you’ve had a steady job for several years, then a three-month emergency fund is probably just fine. But if you’re a one-income family, you’re self-employed, or you earn straight commission, then a six-month emergency fund is probably a better idea for you since a job loss could make you unable to pay the bills.

You should also aim for a six-month fund if someone in your house has a chronic medical condition that requires frequent visits to the doctor or hospital. Even if there’s room in your monthly budget to pay for the expenses, it’s good to be prepared in case a big emergency hits.

Where should I keep my emergency savings?

Your emergency fund should be liquid, meaning you need to keep it in a place where you can get to it easily and quickly. The best option is a simple checking account or money market account that comes with a debit card or check-writing privileges. That way, you can pay that doctor or mechanic quickly and with no headaches.

But make sure you’re not keeping your emergency fund in a place that’s too easy to access. You don’t want to be tempted to dip into it! Winston and I keep ours at a completely different bank than our other accounts to make sure it’s as far away as possible!

When should I use my emergency fund?

When a sudden expense pops up, it can feel like an emergency—but that might not be true. Here are three questions to ask yourself to determine if you need to tap into your emergency savings:

  1. Is it unexpected?
  2. Is it necessary?
  3. Is it urgent?

The more you answer yes, the more likely that situation you’re in is an emergency and justifies using money from your emergency fund.

How to Build an Emergency Fund

1. Make a budget and live by it.

List all your monthly income and any expenses. When you’re making your budget, you’ll be able to see how much money you have available to put toward your savings goal. This will help you as you get ready to jump into the next step.

2. Set a monthly savings goal.

This is how much you want to set aside each month to continue building up your emergency fund. I know, taking money from your paycheck and putting it away to save for the future can be really hard. But you’ll be surprised at how quickly your savings can grow if you’re consistent about adding to it! Don’t know how much is the right amount? Go back to step one and work that budget.

3. Adjust how much you save.

As time goes by, you might be able to save even more! If you or your spouse get a promotion at work, that means you can add more cash to your savings! Be sure to look over your budget for new ways to tighten the purse strings and up the amount you’re saving.

Quick Ways to Save $1,000

One of the easiest ways to beef up your emergency fund is to sell some stuff! Go take a look in your garage or dig through your closet—is there anything you could part with? Selling some items that are collecting dust can add up to major cash in your emergency savings. And every little bit helps! You’d be surprised at how quickly $5 here or $10 there can add up. Plus, you’re doing some decluttering at the same time. Win-win!

And let’s not forget about that wonderful four-letter word: work. Take on a part-time job. Start a side business. Look into dog walking in the mornings before your day job or babysitting those cute kids next door every other weekend. It’s little things like this that can really help you stack extra cash fast!

Another great way to find extra cash? Take my 14-Day Money Finder Challenge! You might be pleasantly surprised at how much cash you can find when you take a closer look at your lifestyle. The average person ends up finding $2,000 for the year—so go take the challenge and see how much extra cash you can find!

Start Your Emergency Fund Today!

Take a second and dream with me—can you imagine what it would feel like to have no debt payments and have six months’ worth of expenses saved in the bank sitting pretty in your emergency fund? Seriously, stop and think about what life would feel like. You’d be able to breathe easier with that safety net in place, wouldn’t you? An emergency fund is sort of like insurance—it costs you some money upfront, but it covers you when things go bad.

Now that you have that picture in your mind, start putting your emergency fund in place! Get on a budget, pay off your debt, and begin saving. You’ll be amazed at how quickly your emergency fund piles up when you aren’t making debt payments! But the best part? You’ll feel an amazing sense of security after completing Baby Step 3.

In fact, if the roof leaks or the washer breaks, don’t be shocked if you end up thinking, Eh, what’s the big emergency anyway? That’s the peace of mind that comes with completing your emergency fund! It turns what would have been a major emergency into just a little inconvenience.

If you want to save money fast, you need a plan. It’s about time you had one, isn’t it? Get step by step guidance with our course, Financial Peace UniversityThis is the proven plan that has helped over 5 million people take control of their money and spending habits. Are you next?

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