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Tips for Building a Healthy Emergency Fund

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GoFundMe Team
|5 min read

Financial Assistance

What is an emergency fund?

Personal financial planners will tell you that saving an emergency fund is even more important than paying off certain kinds of debt—because having an emergency fund is what prevents you from going into debt, especially debt with onerous terms (think payday loans and other forms of predatory lending).  

Here are some tips for building an emergency fund to help keep yourself financially afloat in the face of emergencies large and small.

As a general rule, it’s good to save up six months of your expenses in an emergency fund, with a portion in a savings account you never touch (unless it’s a true catastrophic emergency) and a portion you can withdraw and replenish for lesser emergencies (such as a major car repair). If that sounds like a lot, it is—but start small, opening a dedicated savings account for your fund and putting whatever you can in it each month. Even $50 a month will net you $600 at the end of your first year.

Stay liquid and create a firewall

An emergency fund needs to be saved in an account that’s liquid, meaning you can withdraw the funds immediately if needed. Your emergency fund shouldn’t be deposited in a retirement account or some other special account that isn’t liquid—or one that comes with tax penalties for early withdrawal. You can fund those accounts separately after you’ve saved your emergency fund. Separating these savings creates a kind of firewall between your emergency funds and your retirement savings.

Biggest benefit: peace of mind

Perhaps the biggest benefit of building an emergency fund will be the peace of mind you gain in knowing you can deal with emergencies, such as job loss, disability, unplanned housing or transportation expenses, emergency surgeries, natural disasters, theft, etc. Obviously, few of us suffer all the emergencies all the time, but most of us will face some emergency, large or small, at some point in our lives. In that sense, emergencies are foreseeable.

Mountainburg Tornado Fund

Tips for saving money

Saving money often comes down to spending less, not making more. To save, you need to live within your means and be vigilant about cutting unnecessary expenses. Here are four easy tips to help you start saving, or ramp up your existing savings efforts:

1. Keep an eye on the little things

At almost any income level, we can easily succumb to “lifestyle creep,” the tendency to slowly and steadily increase our monthly expenses on things that we don’t really need.

Be especially mindful of little extravagances that add up over time and are really terrible values. For example, a daily cappuccino that costs $4 is a terrible value and adds up to over $1,000 a year. With savings in mind, go over your monthly expenses and budget, item by item, and look for things you can reduce or cut altogether.

2. Be goal driven

Set a monthly savings goal based on your budget. When you achieve it, reward yourself in some small and inexpensive way (not a bad way to enjoy the small luxuries… such as the occasional cappuccino). You may be tempted to forego all luxuries, but that’s a recipe for feeling deprived—treating yourself now and then, as part of your budget, can make it less tempting to blow savings on bigger luxuries.

3. Make it harder to cheat

It’s easy to spend money on a whim if all your money is sitting in a checking account, linked to your ATM card. It’s even easier if you carry a handful of credit cards on top of that. Set up at least one free savings account that’s not linked to your checking—perhaps an online account that you can automatically transfer a set amount to each pay period. You can even have multiple accounts for multiple savings goals, making it easier to measure progress and not “rob Peter to pay Paul.”

4. Get competitive

If you’re someone who’s inspired by competition, challenge a friend who also wants to save an emergency fund to a savings contest (based on a percentage of income rather than the total amount, unless your incomes happen to be identical).

4. Be accountable

Much like friendly competition, public accountability can help you stick to your goals. If you’re comfortable doing so, announce your savings goal (amount and target date) on social media or to a list of friends via email. Ask them to help you be accountable, keep them posted regularly (say monthly), and celebrate together when you reach your goal.

Using crowdfunding to replenish your emergency fund

Along with saving, crowdfunding can help give your emergency fund a boost—or protect it after a disaster.

When we face any event beyond our control, from medical emergencies to natural disasters, our friends and family want to help—and creating a fundraising page on GoFundMe is a perfect way to make that happen.

Our platform has an engaged community of more than 50 million people who care about others, seeking opportunities to pay it forward. And unlike other crowdfunding platforms (which take a percentage of your funds), we have no platform fee. Learn more about which fundraising site has the lowest fees.

Start weaving that safety net

After you’ve opened an account for your emergency fund and drafted your plan for saving, start crowdfunding today on GoFundMe. And if you should raise more money than you need for the emergency, you can deposit the excess into your emergency fund for the future. For more tips, read Developing and Financing a Disaster Recovery Plan.

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