Emergency Fund: How To Start and Build Yours

igor_kell / Getty Images/iStockphoto
igor_kell / Getty Images/iStockphoto

An emergency fund is money set aside to pay for an emergency situation or unexpected expense that isn’t included in your everyday budget. Not having this type of fund in place could easily decimate your budget for months to come, especially if you suddenly have to pay hundreds of dollars for a medical expense or car repair.

And if the prospect of having to come up with extra money to cover unexpected expenses alarms you, you’re not alone: 37% of American families would struggle to cover an emergency expense of $400, according to the Federal Reserve.

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To help avoid a dicey financial situation and be ready when the unexpected hits, find out what qualifies as an emergency, how much emergencies commonly cost and how to start funding your account right now.

Why Do I Need an Emergency Fund?

While what qualifies as an emergency for one person may not for another, most true financial emergencies fall into one of these categories:

  • Automotive

  • Medical

  • Unemployment

  • Home repairs

  • Family emergencies, including emergency travel expenses

Major auto repairs can potentially equal thousands of dollars, which is one of those expenses that can wreck your budget if you don’t plan ahead. However, you should expect to have to pay for new tires, a new battery or major checkup when you own a car. If you can’t fit those expenses into your budget, you’ll have to reserve part of your emergency money for them.

And while you can anticipate having a medical expense once in a while or a death in the family that requires last-minute travel and funeral expenses, you can never predict when these events will happen. You also never know when you might lose your job or have to make an unexpected home repair. All of these costs qualify as emergency fund expenses.

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Typical Costs of Emergency Expenses

Here’s a look at average emergency expenses, so you can get a good idea of what you need to set aside.

Car Repair Expenses

Car repairs can set you back financially, but knowing how much major vehicle expenses cost can help you budget sufficiently. Here are estimated costs for car repairs, according to RepairPal and the Transmission Repair Cost Guide:

Cost Estimates for Car Repairs

New Car Battery

$145 to $366

Tire Puncture Repair

$20 to $40

Car Radiator Repair

$387 to $825

Brake Rotor Replacement

$406 to $559

Car Windshield Replacement

$200 to $401

Car Transmission Repair or Replacement

41,800 to $3,500

Oil Pump Replacement

$474 to $1,707

Starter Replacement

$284 to $629

Home Repair Expenses

Homeowners should sock away funds to cover home repairs, which can be required suddenly and urgently. Figure out how much you should have saved up in case of common home-repair emergencies. Here are the average costs of some home repairs, according to HomeAdvisor:

Average Cost of Home Repairs

New Roof


Roof Repair


Electrical Problems

$100+ per hour

Plumbing Problems

$125 per hour

Foundation Repairs

$1,000 per beam installed

Medical Expenses

Should you suddenly require urgent medical attention, you’ll want to be able to pay for those expenses without going into debt. Budget for emergency medical situations by knowing how much you might have to spend. Here are some estimate costs for expenses related to emergency room visits, according to Debt.org:

Cost Estimates for Emergency Room Visits

Average Visit


Ambulance Trip

$400 to $1,200

Critical Care Procedures/Surgeries

$1,700 + $500/hour

Chest Pains or Severe Burns

$1,000 + doctor’s fees

Infection with Fever


Basic Head Injury


Viral Infection


Laceration or Skin Rash


Insurance Co-pay

$50 to $150

When You Should Avoid Tapping Into Your Emergency Savings Fund

When a dress or a video game that you’ve been wanting goes on sale, that doesn’t qualify as an “emergency.” A financial emergency is something you need to pay for that is not in your budget. Use your emergency fund only for unexpected needs, never wants. Here’s a list of some wants you should never tap into your emergency fund to pay for:

How Much Should I Save in an Emergency Fund?

You’re probably wondering how much you need in your emergency fund. While many experts suggest padding your emergency fund with three to six months of living expenses, that’s a financial goal that could take a while to achieve — especially if you’re on a tight budget. Instead, make a push to save $1,000, which can cover any emergency expenses that arise. However, you should also continue adding to your fund as consistently as you can.

How To Build Emergency Savings

While building an emergency savings account might seem difficult, it’s not impossible. The key is consistency. Here are some suggestions to get your emergency fund started.

Make Savings Automatic

One of the easiest ways to save for an emergency fund is to not have to think about it. For example, you can automate your bank account so that a small percentage — think 5%-10% percent to start — goes into your emergency fund each month. So if you make $4,000 per month, you’d arrange for $200-$400 to automatically transfer to your emergency fund every month when your check hits your bank account.

Save At Least Part of Any Extra Funds You Receive

It’s tempting to splurge when you receive an additional sum of money, such as a few hundred or thousand dollars. However, if you’re trying to build your emergency fund, it’s much wiser to sock away any windfalls that come your way. For example, if you get a $5,000 year-end bonus or hefty tax refund, you could use it — or at least a portion of it — to seriously jump-start your emergency fund.

Consider Picking Up a Side Gig

By leveraging your skills to pick up a side gig, you could make an extra $500 per month or more. With that kind of money rolling in, you could have $6,000 within a year, which is a fantastic start to a well-padded emergency fund of three to six months worth of living expenses.

Trim Your Budget

Take the time to sit down and go over your budget to find areas where you may be wasting money. For example, are you signed up for multiple streaming services? Do you really have to swing by Starbucks every morning for your favorite coffee drink? And what about that gym membership you never use anymore? Once you’ve found ways to cut unnecessary expenses, redirect those funds to your emergency savings.

Sign Up for a Money-Saving App

When it comes to money-saving apps, you have more than a few options. For example, there’s Qapital, which you connect to your checking account. Qapital reports that its users can save $44 a month or $528 a year by rounding up their change. For example, the app allows you to create savings goals and rules for saving, such as the round-up rule, which will round up the change to the next nearest $1 from each purchase you make from your checking account and put it in your Qapital account.

Where To Keep Your Emergency Fund

An emergency fund must be liquid so you can access it in a moment’s notice. You should still, however, choose an account that pays interest. After all, it might be a long time before you access the money, so make sure your money is making money until you need it.

Traditional Savings Accounts

Traditional savings accounts are good for emergency savings — they typically pay interest and your money is immediately accessible — but an online savings account will likely give you a higher interest rate.

CD Accounts

Certificates of deposit sometimes pay higher interest than regular savings accounts, too, but you generally must leave your money on deposit for a specified time, such as three or six months. If you have to cash out a CD, the penalty might cost more than the interest you earned.

Money Market Accounts

You might want to consider a money market account for your emergency fund, which is a kind of savings account that typically earns more interest than a basic savings account. Most money market bank accounts allow you to write a limited number of checks, which gives you access to your money. Keep in mind, however, that the minimum deposit and balance for this type of account is often significantly higher than that of a basic savings account.

Emergency Fund Takeaways

While building an emergency fund worth thousands of dollars may seem daunting, it doesn’t have to be. Make a reasonable savings goal to achieve within the next six months and work toward it by trimming your budget and automating your savings. If you receive an unexpected bonus or another windfall of cash, add at least part of it to your emergency fund. Lastly, never tap into your fund if it’s not truly an emergency expense.

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John Csiszar contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: Emergency Fund: How To Start and Build Yours