How to Start an Emergency Fund

Think of an emergency fund like a backup hard drive. While we hope we never have to use it, we’re relieved and grateful it’s there in a pinch. An emergency fund provides a comfortable cushion for your family during a crisis and is the foundation of any financial plan. Here we’ll answer all your questions about where, when, why, and how to start an emergency fund.

Why should I have an emergency fund? 

We can all think of countless “life happens” scenarios in which we incur unexpected expenses. Some may be life-changing (like the loss of a job), while others may be relatively minor annoyances (like dropping your cell phone in the bathtub). The main point is that these kinds of crises happen to everyone and having an emergency fund provides peace of mind that when the unexpected inevitably happens, you’ll be able to ride the wave.  

Having a comfortable emergency fund in place also helps you avoid racking up credit card debt to pay for an unexpected expense or cover a period of lost income. This is especially important if you already carry debt.  

How much money should I keep in my emergency fund? 

We recommend keeping 3-6 months’ worth of your fixed expenses in an emergency fund. Set aside three months of expenses if you are single and have no dependents, or if you are a dual-income household. Err on the side of six months of expenses if you are single with dependents, or if you are married but your spouse doesn’t work (one-income household). You’ll also want to target six months if you are a business owner, and your income is variable or unpredictable.  

Looking at your monthly fixed expenses will help you set a goal and start saving towards that goal. Some websites offer online calculators to help you determine your target amount for your emergency fund.  

How do I start an emergency fund? 

Starting an emergency fund is like any other savings goal: Decide your target amount, then strategize how to get there. Consider a variety of saving strategies, such as directing one-time income (like a holiday gift or tax refund) toward your emergency fund, setting up automatic contributions from your checking account to your emergency account, or establishing a habit of saving on a routine basis.  

Where do I keep my emergency fund savings? 

You have a few options as to where to keep your emergency fund:  

  • Cash. We’ve all heard the stereotypical “cash in the mattress” anecdote. And some people do like to keep their emergency fund in cash in their homes. While you do have very immediate access to your fund—a benefit for some people—there is no opportunity for your money to grow and it isn’t as secure as it would be in a bank or investment account. 
  • Bank account. We specifically suggest a high-yield savings account for an emergency fund. A high-yield savings account is an FDIC-insured savings account offered through an online bank. The funds take 1-2 business days to transfer to your checking account, with some banks even offering same-day transfers. You will be paid interest by the bank on your balance, and it will be much higher than what a traditional brick-and-mortar bank would pay.  
  • Conservative investment account. “Conservative” in this sense means the account is more heavily allocated towards bonds than it is stocks. With this setup, the account is invested, and it can lose value, even with the conservative allocation. The funds will take 4-5 business days, on average, to reach your checking account in the event you ever need money. However, the market can reward you, and this offers the highest growth potential of all the emergency fund options. 

When should I start my emergency fund? 

There’s no time like the present! Having an emergency fund is the first step in any prudent financial plan. Having the cash to cover emergency expenses provides peace of mind while you work towards bigger financial goals. 

If you want help budgeting for emergency savings, setting up an emergency fund, or simply getting started with a personalized financial plan, our team at Commas can help. 

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.