Building an Emergency Fund

Corey —  August 28, 2012 — 4 Comments

An emergency fund can be very handy at times. An emergency fund can cover all different types of potential “emergencies.” It all of course depends on the person or family.

An emergency can be job related. Maybe you lost your job, will be taking a pay cut, taking reduced hours or so on. Maybe your car broke down and that is the only form of possible transportation for you. Your emergency fund could then also cover buying a new-to-you car as well. Of course, an emergency fund can also cover all types of other events: medical, house repairs, and so on.

However, it can also be very hard to build up your fund. Determining the amount you need, building up that amount, determining what will constitute a financial “emergency,” and so on can be difficult.

The first step is to decide how much you want/need in your emergency fund. Different financial advisers recommend different amounts. If your job is steady, then 6 months might possibly be either too much or just perfect. If you are self-employed, then it is possible that you might want a higher amount in your emergency fund because the likelihood of you having to dip into it might be a tad higher.

If you’re paying off debt, the recommended amount is around $1,000 by some advisers so that you can focus more on debt. I’m different though, I have debt, but I prefer to keep my emergency fund full at around $15,000.

For us, we prefer to have a fully funded emergency fund. We are more comfortable with it being fully funded, so that we are fully prepared. Our emergency fund is designated towards any potential job losses or any potential repairs that may be needed around our house.

We have a friend who did not a have theirs fully funded, and they had to pay $6,000 for a whole new air conditioning and furnace system in their house. In the end, I believe that had to just put it all on a credit card, and it would be hard to pay off a $6,000 credit card bill within one month so that it does not accrue.¬† This is something that we definitely do not want to happen to us. And we also don’t want any extra stress added on to us financially if it did happen. And this is what makes having an emergency fund worthwhile.

The $15,000 in our emergency fund would pay our basic expenses for around 6 months if something were to happen, or if we needed something to be fixed, then we won’t have to accrue more debt to get something fixed around the house.

Another question to ask yourself is where and how your emergency fund money will be stored. Do you prefer to keep it all close and store it in your house (this is not something I recommend)? We keep our emergency easily accessible in a savings account. Yes, it accrues very little interest, but it is readily available for us in case there is some sort of financial emergency where we need quick cash. Some also invest their emergency funds in the stock markets or put it into money market accounts.

There are several ways to build up your emergency fund quickly:

  1. Pay yourself first. This will help you to save quickly. Designate a set amount of money form each paycheck to go towards your emergency fund.
  2. Save as much as you can. This can include eating at home as much as you can, stopping your clothing spending for some time, watching your utility usage, eliminating or reducing your cable or cell phone bills and so on.
  3. Find ways to increase your income. Maybe trying finding a part-time job. This can include working maybe at a retail store, waitressing or finding a side gig. Side gigs can include online income, babysitting, walking dogs, and so on. Even if the pay is small, they will add up quickly and help you reach your emergency fund number quickly.

How did you choose how much to put in your emergency fund?



Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

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