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How to establish an emergency savings fund

An emergency fund is an important part of your financial picture. Learn how much you need and how to get started. 
Establishing an emergency savings fund now can have a big payoff later. Setting aside emergency savings can help you get by if your home or car needs urgent repairs, as well as in more serious situations such as illness or unemployment. Here’s how to figure out how much you need and how to get started.
Your emergency savings fund should be enough to cover your major expenses for six to nine months. If that seems daunting, you can always start by targeting three months of expenses and build from there. Here are some important expenses to consider when determining how much to save:
  • Housing expenses: Your emergency fund should include savings for housing expenses such as rent or mortgage, property taxes, insurance and utilities. Protecting the value and integrity of your home is of utmost importance, so it’s a good idea to also include savings for emergency home repairs.
  • Food: Estimate your monthly food expenses and include those costs in your emergency fund savings. Save money on food by reducing your food expenses—cut back on dining out, build your shopping list around sale items, and use coupons—then apply those savings to your emergency fund.
  • Insurance: Factor in the monthly cost for medical and dental insurance. Remember, if you’re laid off, you may be eligible to stay on your former employer’s health plan for a period of time at your own expense through COBRA—the Consolidated Omnibus Budget Reconciliation Act. You’ll also want to factor in the cost of any disability or life insurance policies you may have.
  • Debt repayment: Plan for payments on credit cards and other debt in order to protect your credit score. Try to take steps now to get out of debt to avoid the stress of dealing with these expenses if you become unemployed or face a financial challenge.
  • Transportation: If you have a vehicle, your emergency savings should cover necessary costs such as your car loan, auto insurance, basic maintenance, fuel and emergency repairs.
  • Personal expenses: Costs related to household supplies, haircuts, clothes and toiletries may seem generally inexpensive but can add up. Remember to include those items when figuring out how much to save for an emergency fund.
Once you know what your emergency fund should cover, the next step is to set up a savings plan to build toward your goal. An easy way to get started is to put any big payments, such as a tax refund or holiday bonus, away as savings. From there, work on a specific monthly savings goal and devote a percentage of every paycheck to savings. It’s a good idea to pay yourself first by establishing automatic transfers into a designated savings account. Automatic savings can go a long way to ensuring strong and steady growth of your emergency fund.
Once you’ve committed to monthly savings, consider the options for where to put your emergency fund:
  • Regular savings account: A regular savings account allows you to access your money whenever you want. A basic savings account is a good choice if you’re just starting to save and want to be prepared for unexpected expenses.
  • Money market account: Money market accounts are a good option if you want higher interest rates as your balance grows, while still maintaining easy access to your funds. These accounts tend to offer a better return than a regular savings account, but may require a higher minimum balance to avoid fees.
Whichever savings account or method you choose, make sure you can access your emergency savings fund when you need it so you’re prepared for the unexpected.
The material provided on this website is for informational use only and is not intended for financial or investment advice. Khan Academy assumes no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options. Khan Academy doesn’t provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Want to join the conversation?

  • blobby green style avatar for user Nicole Castro
    What type of emergencies should i be saving my money for ? when will I know it is worth taking money out of my savings account?
    (6 votes)
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  • blobby green style avatar for user Nicole Castro
    How much money should I be putting in my emergency savings account to start off?
    (4 votes)
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  • blobby green style avatar for user Briniya Bagley
    how much money do i put into my saving account
    (5 votes)
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  • aqualine ultimate style avatar for user Abraham Koen
    do you think that it would be necessary to have a large emergency fund if you're still living with your parents?
    (4 votes)
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    • sneak peak blue style avatar for user ellerymaeve
      It's definitely a good idea! You may not need to make a distinction between regular savings and emergency fund savings, as is useful when you're an adult, but saving a percentage of your income is certainly a good idea! Especially while you're young, start with a high percentage of your income, like 25-50% or more, to put aside each month and not spend. Then if you have an emergency in your first week of living on your own, you will be prepared!
      (3 votes)
  • blobby green style avatar for user Em Mabry
    How much should I put in my emergency savings account to start off?
    (5 votes)
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  • blobby green style avatar for user tbarrera
    What bank account would be better for you to start off?
    (3 votes)
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    • starky ultimate style avatar for user Dosei Evans
      I started off with a savings account for a couple of years--though it's not for spending money. I think it's better to have at least two bank accounts- one savings and one checking so you won't go to the extreme in either spending or saving.
      (2 votes)
  • boggle blue style avatar for user x.asper
    What would be the best to do, buying a house or renting an apartment? I would like some type of independence though.

    Please let me know if you have an answer.
    (3 votes)
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  • blobby green style avatar for user 2019pauchrx
    putting lots of money away is a good idea
    (3 votes)
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  • blobby green style avatar for user Deimy Caceres Bonilla
    Your emergency fund should include savings for housing expenses such as rent or mortgage, property taxes, insurance and utilities. Protecting the value and integrity of your home is of utmost importance, so it’s a good idea to also include savings for emergency home repairs.
    (3 votes)
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  • leaf blue style avatar for user laura.quick
    Whats the best amount of money to save throughout each paycheck?
    (2 votes)
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    • sneak peak blue style avatar for user ellerymaeve
      Generally it's best to go by a percentage, since people's income varies a lot. I've heard a general rule as 10-15%, but some people recommend 20-25%, and I do over 50% since I am living at home and have low expenses. The best thing would be to pick a percentage which will fit within your budget and stick to it, no exceptions, for every paycheck. In many cases you can set up direct deposit to put a specific percentage in savings, so the process is automatic and easy.
      (2 votes)