All Articles

Building an emergency savings fund: what to know and how much to save

According to a recent survey, more than half of Americans have less than three months’ worth of expenses in an emergency fund1

It can be all too easy to ignore that you may be in financial trouble should something unexpected come your way. However, it’s imperative to actively prepare for such situations. An emergency savings fund operates as a sort of lifeline that you can utilize when an unexpected event or circumstance occurs, forcing you to seek financial help likely beyond your regular checking or savings accounts. It can also help prevent you from going into debt to cover the expense, whether by accruing credit card debt or by seeking other methods of paying for the expense.

You might be thinking, “well, I’m sure I have enough in my savings account to cover anything that comes my way.” However, an emergency savings fund is ideally meant to be separate from your regular checking and savings accounts. While you are certainly able to organize your various bank accounts however best fits your needs, the purpose of keeping an emergency savings fund apart from your normal, everyday accounts is to reduce the temptation to pull funds from it on a whim.

Life doesn’t often give you a heads up before sending a curveball your way—you may have no idea your furnace is about to give out in the middle of the winter, or that your employer is planning on announcing layoffs. An emergency savings fund can help with the stress that comes with dealing with whatever situation you’re dealt, by helping to alleviate some serious financial woes.

How to get started

When starting an emergency savings fund an important first step to take is to identify what the fund will be used for. If you are establishing a fund together with your spouse, partner, family, etc., think about your goals and establish some parameters together on what the money will be used for.

 Keep in mind—your emergency savings fund should be used exclusively for unexpected expenses that are critical to the overall well-being of you and your family.

The next step is to determine how much you’ll need to save. The general rule to follow is 3 to 6 months’ worth of living expenses, but this can vary depending on your personal situation. To calculate how much you’ll actually need to save up, start by reviewing your monthly budget. If you don’t have a budget, review your bank account statements over the last several months. From there, calculate all of your recurring, fixed monthly expenses—rent or mortgage payments, utility payments, internet, and phone payments, insurance payments, car payments, debt payments, and anything else you know that you will absolutely be paying each month. Then, add up how much you spend on other more variable, yet still regular, monthly expenses—groceries, gas, any subscriptions you may have, and so on. Lastly, add up how much you spend on other highly variable items on a monthly basis—going out to eat, coffee runs, entertainment, shopping, and anything else that you notice a pattern of in your budget. Once you have all 3 numbers, add them all up. This is roughly the amount that you spend on a monthly basis. Of course, this will very likely vary depending on the month, yet it will still give you a good estimate of how much to budget for on a month-to-month basis. Lastly, multiply this number by the number of months you will strive to save for—for example, multiple by 3 to calculate 3 months’ worth of savings.

The final number you calculate may seem overwhelming. Perhaps you are struggling to save money as it is and don’t foresee a way to get to your ideal emergency savings amount. If you calculated that you should be saving $10,000 and it’s difficult to wrap your head around that number, instead strive to save $1,000. Break your savings goal into more achievable numbers and start there. Once you start hitting your goals, it will be more motivating to keep your momentum up and eventually achieve what you aspire to.

Learning to save more money

Figuring out how to save more money isn’t the easiest task. The best thing to do is to settle into a routine so that the action of saving money becomes habitual, rather than an afterthought. Both the savings goal you’re striving for and how you’ll get there will vary based on your individual situation. If you are feeling overwhelmed or anxious at the prospect of mapping out how to save for your goal, a financial professional can be an excellent resource.

Here are 3 ideas to help get you started:

  1. Budget. If you don’t already have a comprehensive budget, take this opportunity to create and maintain one. A budget is the best way to stay in control of where your money is going. Keeping up to date with it can help you become more mindful of your money and adopt more disciplined spending habits.
  2. Make it easy for yourself to save. Many banks offer programs that you can enroll in where with every financial transaction you make, $1 (or another amount) will be transferred into your savings account. While you may not notice the absence of an extra dollar from your checking account, it will certainly add up over time in your savings. In addition, set up regular transfers from your checking to savings account. Set this up according to whatever works best for you—whether it is a $5 transfer every day, $50 every week, or something else. Setting up automated transfers is a great way to ensure the money will get into your savings while reducing the temptation of spending that money.
  3. Find small ways to build up your savings. Make a mental rule that any money earned outside of your regular income (tax refund, bonus, gift money, supplemental income, etc.), will go toward your emergency savings fund. Even if these contributions are sporadic and/or small in their amounts, they will eventually start to add up.

Other considerations

If you do have to utilize your emergency savings fund for its intended purpose while in the midst of trying to reach your savings goal, don’t panic. This is what the fund is for—to cover unexpected expenses. Even if your fund took a substantial hit, keep your savings efforts going and work towards replenishing it.

Once you do hit your desired savings goal, keeping up with it is important—yet it is also important to balance your savings efforts with your other financial goals and priorities. While saving “too much” isn’t necessarily a bad thing, your money may be more useful elsewhere, such as your retirement savings account, college savings fund, saving for a home of your own, paying off any existing forms of debt, and so on.

Taking the leap and building up an emergency savings fund can be a not-so-straightforward path yet saving for the unexpected, should an unpredictable expense or event occur, will be well worth your efforts.

Interested in discussing this topic further with a financial professional? With offices in 20+ states, there is likely a North Star financial advisor near you. Contact a financial professional here.


1. “Survey: More than half of Americans couldn’t cover three months of expenses with an emergency fund.” Bankrate. Published July 21, 2021.
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.