A Quick Guide to Your Emergency Fund

5 Minute Read

Wouldn’t it feel great to have a buffer between you and the curveballs life throws at you—a cushion that helps you sleep soundly at night because it turns a major life crisis into just a slight inconvenience?

Well, I have good news! That buffer is part of the Baby Step plan! Say hello to the fully funded emergency fund, also known as Baby Step 3.

What’s an emergency fund?

An emergency fund is simply money you’ve set aside for unexpected events in life. We’re talking about true emergencies here, like a car wreck, a hospital visit, or a leaky roof. Suddenly seeing that flat-screen television go on clearance or walking past a BOGO shoe sale doesn’t qualify as an emergency. Sorry, you guys!

If you have debt, I recommend saving a starter emergency fund of $1,000 first. Then, once you’re out of debt, it’s time to beef up those savings and build a fully funded emergency fund of three to six months of expenses.

The reason to have an emergency fund is simple: You don’t know what’s going to happen. And no one wants to live at the mercy of life’s twists and turns. Your emergency fund will come in handy if you suddenly lose your job or your HVAC breaks in the dead of winter. Don’t let yourself be caught off guard! You need that safety net between you and life.

How big should your emergency fund be?

The more stable your income and household are, the less you need in your emergency fund.

If you’re part of a two-income household or you’ve had a steady job for several years, then a three-month emergency fund is probably just fine. But if you’re a one-income family, you’re self-employed, or you earn straight commission, then a six-month emergency fund is probably a better idea for you since a job loss could make you unable to pay the bills.

You should also aim for a six-month fund if someone in your house has a chronic medical condition that requires frequent visits to the doctor or hospital. Even if there’s room in your monthly budget to pay for the expenses, it’s good to be prepared in case a big emergency hits.


Where should I keep my emergency savings?

Your emergency fund should be liquid, meaning you need to keep it in a place where you can get to it easily and quickly. The best option is a simple checking account or money market account that comes with a debit card or check-writing privileges. That way, you can pay that doctor or mechanic quickly and with no headaches.

But . . . make sure you’re not keeping your emergency fund in a place that’s too easy to access. You don’t want to be tempted to dip into it! My husband, Winston, and I keep ours at a completely different bank than our other accounts to make sure it’s as far away as possible!

What’s an emergency?

When a sudden expense pops up, it can feel like an emergency—but that might not be true. Here are three questions to ask yourself to determine if you need to tap into your emergency savings:

1. Is it unexpected?
2. Is it necessary?
3. Is it urgent?

The more you answer yes, the more likely it’s an emergency and the more it justifies using money from your emergency fund.

What does the emergency fund do for you?

Everyone views the emergency fund differently. Some of us feel safer with a pile of cash on hand for when life happens. It’s security. Others don’t want money to just sit there in the bank. They want to do something with it—like invest.

Remember, though, the emergency fund is doing something. It’s giving you peace of mind—and that’s a great return on your money!

How to Quickly Build an Emergency Fund

One of the easiest ways to beef up your emergency fund is to sell some stuff! Go take a look in your garage or dig through your closet—is there anything you could part with? Selling some items that are collecting dust can add up to major cash in your emergency savings. And every little bit helps! You’d be surprised at how quickly $5 here or $10 there can add up.

Another great way to make extra cash quickly? That wonderful four-letter word: work. Take on a part-time job. Look into dog walking in the mornings before your day job or babysitting those cute kids next door every other weekend.

Start Your Emergency Fund Today!

Now that you know what an emergency fund is for, start putting one in place! Get on a budget, pay off your debt, and begin saving. You’ll be amazed at how quickly your emergency fund piles up when you aren’t making debt payments! But the best part? You’ll feel an amazing sense of security after completing Baby Step 3.

In fact, if the roof leaks or the washer breaks, don’t be shocked if you end up thinking, Eh, what’s the big emergency anyway? That’s the peace of mind that comes with completing your emergency fund.

Get on the same page as your spouse when it comes to money—join me and Dr. Les Parrott this spring at a Money & Marriage event coming to a city near you! Invest in a date night like no other!

About Rachel Cruze
Rachel Cruze is a seasoned communicator and #1 New York Times best-selling author, helping people learn the proper way to handle money and stay out of debt. You can follow Rachel on YouTube, Facebook or

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