5 Simple Steps to Build an Emergency Fund

A car repair, a medical bill, a sudden job loss—life happens. Without a financial cushion, these events can push you into debt. That cushion is called an emergency fund.

Step 1: Set a Target

Start small. Aim for $1,000 initially. This covers most minor mishaps like a blown tire or a small appliance repair. Your ultimate goal should be 3 to 6 months of living expenses.

Step 2: Calculate Your Monthly Expenses

To know what "3 months of expenses" looks like, you need to know what you spend. Tally up your rent/mortgage, utilities, food, insurance, and minimum debt payments. Multiply this by 3 to get your goal.

Step 3: Open a Separate Account

Don't keep your emergency fund in your checking account. It's too easy to spend. Open a High-Yield Savings Account (HYSA) at a different bank. This keeps the money accessible but "out of sight, out of mind."

Step 4: Automate It

Set up an automatic transfer from your checking to your savings every payday. Even $50 a paycheck adds up. Treat it like a bill that must be paid.

Step 5: Save Windfalls

Get a tax refund? A work bonus? A birthday check? Put half (or all) of it directly into your emergency fund. This can speed up your progress by months.

When to Use It

Only use this money for true emergencies. A sale on shoes is not an emergency. A broken furnace in winter is. If you do use it, make it your priority to replenish it immediately.