6 Steps to Building an Emergency Fund

By Janet Siroto · July 27, 2023 · 6 minute read

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6 Steps to Building an Emergency Fund

How many times have you heard the financial advice, “Start an emergency fund”?

Probably dozens of times. But much as most people would like to have an emergency fund, it can be hard to prioritize saving for a rainy day when the sun is out and you want to plan a beach getaway…or just pay your current bills.

But what would happen if your car conked out en route to the beach and you needed a $800 repair? Or if you were unfortunately laid off and couldn’t pay the pile of bills without reaching for your credit card?

Those are examples of why emergency savings are so vital. It can be especially hard to save, though, when you don’t know how to build up that financial safety net. This article will change that. It shares step-by-step advice about how to ensure that you can handle the unexpected expenses that can be part of life.

If you’re convinced of the value of an emergency fund and ready to start saving, follow these steps:

1. Set a Specific Savings Goal

2. Start Small, and Stockpile When You’re Able

3. Make Automatic Transfers

4. Manage Expenses and Spending

5. Don’t Increase Monthly Spending

6. Gamify Your Savings

1. Set a Specific Savings Goal

As mentioned above, most financial pros will recommend that you save three to six months’ worth of living expenses. Calculate that sum, and divide it by 12 or 24 to get your one- or two-year savings plan.

Recommended: Use this emergency fund calculator to help you determine your savings target.

2. Start Small, and Stockpile When You’re Able

If even the two-year savings plan is intimidating, don’t worry. The important thing is to just begin saving and to stick with it. If you only have $25 per month, save that much. Good start!

Also consider growing your savings by depositing windfall money in your emergency fund. Perhaps you’ll receive a tax refund, a bonus at work, a rebate, or other unexpected source of funds.

3. Make Automatic Transfers

It can be a smart move to funnel money into your emergency savings consistently. You could set up automatic savings into your emergency fund just after you get paid; even $10 or $20 per paycheck will build up over time. If you don’t see money sitting in your checking account, you won’t be tempted to spend it.

Or if you have a side hustle (more on that below), you might decide to always deposit 10% or 20% of your earnings into your emergency fund. Yes, you could go on a little shopping spree and feel rich in the moment, but saving it can bring a sense of security while increasing your wealth over time.

4. Manage Expenses and Spending

If you’re feeling you just don’t have any cash available to put toward an emergency fund, consider ways to manage your money better and cut your budget a bit.

Perhaps you could eat out a bit less often, save on streaming services, shop for basics at warehouse clubs, or find other ways to make budget cuts. Once you lower or eliminate some costs, you can put that extra money toward your emergency fund.

5. Don’t Increase Monthly Spending

Do you know what “lifestyle creep” means? It happens when, as you begin to earn more, you spend more. As your income grows, so do your expenses, meaning you don’t build wealth. If you get a raise at work and then lease a luxury car, you will struggle to increase your savings.

However, if your spending stays in check, you can put a portion of your raises toward your emergency savings account.

6. Gamify Your Savings

One method that might help you sock away money in your emergency fund is to gamify your savings. You can give yourself fun challenges that help you save cash. For instance, you might challenge yourself not to buy any fancy takeout coffee for a month and put the amount saved in your bank account. The next month, you might skip classes at the yoga studio and instead practice at home.

Earn up to 4.60% APY with a high-yield savings account from SoFi.

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Adding to Your Emergency Fund

As noted above, it’s fine to take your time building up your fund, but if you don’t take the first step and start, you’ll never get ahead. If you are struggling (as many people do), to find the cash for this goal, consider these hints:

•   Start a side hustle. You could get a weekend gig walking dogs. Or do you love ceramics? Try selling your pieces on Etsy. There is no limit to what you can try, plus a key benefit of a side hustle is making some extra cash, which you can put towards your emergency fund.

•   Gamify your savings. One month, go without fancy coffee-bar drinks and put the money saved into your emergency fund. The next month, skip takeout and cook at home. Put the extra cash into your rainy day account. You are likely to see the amount climb.

💡 Recommended: 39 Passive Income Ideas to Help You Make Money

Tips for Staying Motivated When Building Your Emergency Fund

As you put money into an emergency fund, you may want to try these tips for staying motivated:

•  Find a buddy. Pair up with a friend or relative who is also trying to save and support one another through the ups and downs of the process.

•  Give yourself a pat on the back. Recognize that saving can be hard, and you may not hit your goal every month. But every time you put money in your emergency fund, you are doing something positive for your financial health. Be proud of yourself, and give yourself a little treat now and then to celebrate your accomplishment.

•  Use available tools. Many financial institutions, as well as other companies, offer ways to automate, track, and grow your savings, such as rounding up functions and the like. See what is offered that could help you save more easily.

Banking with SoFi

Starting and keeping an emergency fund isn’t the most exciting place to put your money, but it is one of the most important. By keeping at least three to six months’ worth of expenses in a liquid account that earns a bit interest, you will be rewarded with peace of mind and an important cushion if you should hit one of life’s unexpected speedbumps.

If you’re looking for a place to begin and grow an emergency fund, see what SoFi Checking and Savings offers. When you open a SoFi bank account with direct deposit, you’ll earn a competitive APY, and you won’t pay any account fees, so your money can grow faster.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.


Should I put my windfall towards my emergency fund?

Putting a windfall, like a tax refund or a bonus, towards an emergency fund can be a great idea. Instead of spending the money on a purchase, which is likely to be a passing pleasure, you can put the cash aside and enjoy peace of mind. If an unexpected, urgent bill comes up, you will likely be better prepared to pay it.

How much of my paycheck should go to my emergency fund?

It can be a good idea to calculate what your monthly living expenses are and then multiply that by at least three or six to determine your goal for your emergency fund; then see how much you need to save to reach that in a year or two. If you do like a specific guideline, some experts say to save 20% of your take-home pay for emergencies and retirement.

Does the 50/30/20 rule apply to emergency funds?

The 50/30/20 rule is, in part, designed to help people have funds on hand for an emergency (as well as save money for retirement). The idea is that you spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings. How much of that 20% you allocate to an emergency fund will depend on your own personal situation and your other savings goals.

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