Building an Emergency Fund

    Ever heard the phrase bad things come in threes? Unfortunately, life sometimes works like that.

    You can land in worse trouble when that triple play is finance-related. Minor emergencies can pile up, and suddenly, a regular week of crisis spending develops into a financial storm.

    Most Americans are unprepared for these types of events.

    A 2011 survey by the National Foundation for Credit Counseling found that 64 percent of Americans don’t have enough available cash to handle a $1,000 emergency.

    Despite your financial standing, there are multiple ways and reasons for building an emergency fund that will eventually offer you temporary financial security through unexpected events.

    Ways to Grow Your Emergency Fund

    An emergency fund is a lifesaver. When it comes to impromptu bills, repairs and replacements, a cash cushion can keep you from sinking into debt. For many of us, now is the time to start building that fund.

    You might dismiss the idea of an emergency fund immediately as something you cannot afford. The thought of having access to a $1,000 sounds like a luxury, and slowly saving that much money with an already slim budget seems like a far-fetched idea.

    So what do you do? You start small.

    A realistic and achievable goal will help discipline your savings. If you can, begin by putting $100 in a savings account. Try opening an account that earns interest and doesn’t penalize you for accessing your funds. Set up automatic payments with a small percentage of your paycheck going directly into savings every two weeks.

    If you want to prevent yourself from easily accessing those funds for non-essential expenditures, keep the account off your debit card.

    Another way to jump-start an emergency fund is by assigning half of your tax refund toward that goal. The average tax return is more than $2,800, according to a March 2013 article on If you deposit half that amount, you will still have some money left for paying other bills or buying something for yourself.

    If you need your tax return for more important and immediate needs, then cut back on your spending as a way to save for your emergency fund.

    You could try putting your gym membership on hold for three months and exercise outdoors. Cancel streaming entertainment services like Netflix that don’t charge you a reconnection fee.

    Contact your car insurance company and see if they can lower your monthly payments if you haven’t been in any accidents. Request a rate reduction on credit cards to lower your monthly payments. You can also reduce your smartphone’s data package.

    A more difficult option for building an emergency fund is to increase your income.

    You can accomplish that by working more hours or requesting a raise, although you might not have those alternatives available to you. If you have the time, think of working a part-time job on the weekends or freelance work.

    If you have personal items you no longer use, consider selling them on Craigslist. Even if you get $20 for a desk that’s been sitting in the garage for months, you are now $20 closer to your emergency fund goal.

    Once you’ve built your emergency fund and feel comfortable with your strategy for saving money, you can direct extra funds into a savings or investment account. If you have more than $1,000, you may consider using those extra funds toward loans or credit card debt.

    Reasons for Having an Emergency Fund

    Here are some reasons why an emergency fund might be helpful.

    • Pet care: A beloved pet, young or old, entrusted to the safe keeping of your own home can come down with unexpected health problems. Pets may require shots or medication that will add to the vet’s office charges. A test alone can be hundreds of dollars.
    • Home repairs: Impromptu house fixes like new gutters, replacement garage door, AC unit, water heater, washing machine or fridge can wipe thousands of dollars from your earnings.
    • Rent: As a result of circumstances or relationships changing, you may need to break a lease which can be expensive. Paying a security deposit for your next apartment or home along with starting costs for cable, electricity and water are costly.
    • Repairing electronics: The newer an item, the more it may cost for repairs or replacement, from smartphones to flat-screen televisions.
    • Vehicle repairs: Cars often break down without much warning and repairs can run more than $1,000. Accidents also are unplanned events that can cost you thousands — with or without insurance. Tickets and legal costs add up. Sometimes an unpaid ticket or toll that is forgotten can result in a suspended license and more fees. A DUI is an expense that is not only dangerous, but also results in high legal fees.
    • Health care: Even when you have insurance, medical costs can pile up. An ambulance ride can cost you $500. Mammograms, ultrasounds and other high-tech tests are expensive. A co-pay for an emergency room visit can be as much as $400.
    • Relationships: A short- or long-term relationship might be over, but debt often remains. If you shared a credit line, your name is still tied to that account.
    • Taxes: You can’t always predict how much you will owe by the time it comes to turn in those W-2s, especially those who complete contract work that makes it difficult to estimate exact costs.
    • Unemployment: Even if it’s short-term, being without work leaves you vulnerable and threatens your ability to cover regular living expenses.
    Bill Fay

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at

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