Life happens. A pipe bursts and floods your basement. You get the dreaded pink slip. Your car engine starts making scary and expensive noises. It’s never a fun thing when it happens, but unexpected emergencies are an inevitable part of life.

When the time comes, it’s best to be prepared. While loans and credit cards are an option when you need to pay up, it’s a better idea to have some cash stowed away when times get tough. This is where an emergency fund comes in.

#What is an emergency fund?

An emergency fund is a cash fund you set aside for emergency expenses, such as unexpected medical bills, urgent car and home repairs, or covering essential expenses after a loss of income.

Emergency funds can be a vital lifeline to help you avoid debt, late fees, and other problems that can arise when you don’t have the cash to pay for an unexpected expense outright.

#Why do you need an emergency fund?

An emergency fund should cover essential, urgent expenses. It acts as a financial safety net, giving you the assurance that you can weather a job loss, illness, pipe burst, or other unexpected and unpleasant surprises fate may throw your way.

While emergency funds are essential, not many households have them. According to a 2025 survey less than half (46%) of Americans have enough of an emergency fund to cover three to six months of expenses. Nearly one in three (30 percent) have less than three months’ worth of expenses, while 24 percent have no emergency savings at all.

Having an emergency fund can save you hundreds and even thousands of dollars in late fees and interest charges.

Let’s say, for example, you have to make an emergency repair on your car that costs $3,000.

If you take out a personal loan to cover the cost, with an interest rate of 10% and a term of a year, you’ll end up paying $164.97 in interest. If you use your credit card to cover the cost, at an APR of 23%, you’ll pay $386.75.

An emergency fund, however, doesn’t come with fees or interest, saving you from the cost of going into debt.

#How much should you save in an emergency fund?

Experts recommend that an emergency fund should cover three to six months’ of household expenses, including your mortgage/rent, taxes, insurance premiums, groceries, subscriptions, and otherwise.

According to the Bureau of Labor Statistics, the average household spent $6,545 per month ($78,535 yearly) in 2024. This means, on average, the typical household will need $19,633.75 to $39,267.50 in their emergency fund.

How much you’ll want to save will depend on your expenses, as well as how much wiggle room you want in your budget.

Here’s an example of how different ranges of savings will be based on how many months you save for, based on monthly essential expenses of $6,500.

#Where should you keep your emergency fund?

Your emergency fund should be quickly accessible and secure. Keeping your emergency fund in an FDIC-insured bank account will ensure that your funds can be withdrawn quickly, and that it’ll be kept safe from theft, economic, and natural disasters, while offering some interest on the balance.

While an investment fund or Treasury bonds may offer better interest rates than a bank account, it’s harder to access these funds, as you’ll have to sell your stocks or bonds on the market. While cash may also seem accessible, it’s less safe to keep on hand than in a bank, and won’t accumulate interest sitting under your mattress.

When choosing a bank account for your emergency fund, consider an online high-yield savings account. These accounts offer higher interest rates than standard bank accounts, which will allow your savings to grow and keep pace with inflation.

#When to use your emergency fund

Emergency expenses can be summed up in three criteria: Essential, Immediate and Unavoidable. When considering using your emergency fund, ask yourself:

• Is it Essential? You should only use your emergency fund for something that is absolutely necessary for your life, safety, and financial well-being. Making a mortgage payment after you’ve lost your job, or fixing the brakes on your car, are essential. Funding a cruise because you get offered a once-in-life time discount is not.
• Is it Immediate? Only dip into your emergency fund when you need the money straight away. If you’ve lost your job but get a severance check for three months’ pay, use those funds before you use your savings.
• Is it Unavoidable? Consider the options you have on the table before you use your fund. For example, if you’re facing a medical bill, see if you can get an interest-free payment plan from the hospital, or have the bill reduced. If you have a health savings account, you should use those funds before your emergency fund.

If any of the answers to those questions is no, then you may want to re-evaluate using your emergency fund, and pull from your regular savings, opt for a different payment option, or forgo the expense altogether.

#How to build your emergency fund, step-by-step

Building an emergency fund doesn’t happen overnight. Here are the steps to take if you want to build your emergency fund the sustainable way.

• #Determine how much you need

The general benchmark, you’ll want to save at least three to six months worth of household expenses in your emergency fund.

Exactly many months you’ll want to save will depend on you, your circumstances, and the general economic climate. If your income is unstable, if you have dependents to take care of, or if the job market is rough, you may want to save for more months.

In addition to your three-to-six month goal, you may want to consider adding additional amounts for car, medical, and other emergencies. This can give you more resources if you’re facing multiple emergencies at once, such as a medical bill after losing your job.

• #Evaluate your financial health

Once you’ve determined how much you need to save, get a picture of your overall financial health, and how to prioritize your payments.

If you have high-interest debts that you need to pay off, such as credit card debt, then you may want to prioritize these over maxing out your emergency fund.

While you shouldn’t skip having a fund entirely, you may want to save about a month’s worth of expenses and then focus on your debts. This way, you don’t have to worry about your debts growing with interest, and you can focus your former debt payments on your emergency fund.

• #Look at your budget

Your budget will not only tell you how much you need to save in your emergency fund, but how much you can contribute each month.

If you’re going by the 50-30-20 rule, where 50% of your budget goes to needs, 30% goes to wants and 20% goes to savings, you should be directing some of your savings category toward your emergency fund.

If you’re a Monarch user, then you can use your monthly and yearly reports to see how much is going to savings, essentials, and non-essentials.

If you aren’t contributing to your savings at all, then you’ll need to cut some non-essential expenses, or increase your income, and use that for your emergency fund.

• #Set a monthly payment

Once you’ve looked at how much you can contribute each month, set a benchmark for saving each month and make it your monthly payment.

It’s a good idea to make your savings automatic and at the start of each month, or directly from your paycheck. This way, you won’t be tempted to spend all of your paycheck before you’ve contributed to your emergency fund, and you can do it in the background.

• #Set a timeline

With your monthly payment, you should be able to set up a timeline for when you hit your emergency fund goal. This will give you an idea of when your fund will be set and allow you to have a light at the end of the tunnel to work toward.

For example, if you make an emergency fund goal of $15,000 and contribute $750 each month to it, you should be able to make your savings goal in about two years (20 months.)

If you use a financial app like Monarch, you can set your goal and watch your progress in real time as you contribute toward your savings.

• #Add any extra payments to your fund

If you happen to get some extra cash from a bonus or a tax return, hold off before splurging. Contributing your extra money to your emergency fund will help you in the long run and put you close to your goal.

See how else you can increase your income. Consider negotiating a raise with your employer, or take on a side hustle on the weekends and the evenings to help boost your contributions.

• #Check in frequently

Keep an eye on your balance as time goes on. Make sure that you’re keeping up with your payments, that you’re getting a good interest rate, and that your bank account isn’t charging you any fees.

Once you’ve hit your emergency fund goal, give yourself a pat on the back. You’ve just taken a huge step toward financial freedom and agency!

#Maintaining and Growing Your Emergency Fund

If you have an emergency fund that’s filled up, congratulations! Enjoy your financial security and know that you have something to fall back on.

After you’ve hit your goal with your emergency fund, be sure to check up on it on a regular basis. At least monthly, be sure to:

• Evaluate if your emergency fund still fits your needs. If your essential expenses have increased, adjust your fund accordingly.
• Make sure you’re getting a good interest rate. Compare your current interest rate to the other savings accounts available, and see if you can snag a higher rate elsewhere.
• Consider adding extra funds for medical, car, and home emergencies. Multiple emergencies can happen at once, which is why having some extra wiggle room can be a good idea. While you don’t have to keep them in separate funds, you can account for the extra savings in your budget.
• Put any extra savings toward investments. While having a full emergency fund is great, there is such a thing as too much. Consider putting some of your extra funds toward investments such as your retirement fund or a stock portfolio, which will grow your money more than keeping it in a savings account.

If you have to dip into your emergency fund, follow the same steps as you did as when you initially built it: make a goal, set a monthly payment, focus-fire your payments, and set a timeline for yourself.

#Conclusion

An emergency fund is a financial necessity. When times get tough and you need cash quickly, having an emergency fund can save you on interest rates, late fees, and the headaches that come with not having enough money to cover an unexpected expense.

Focus on saving three to six months worth of household expenses, and make sure you’re getting a good interest rate on your account. If you save smartly and build your fund gradually, in no time you’ll have enough to build yourself a safety net and have one less worry on your mind.

#FAQs

#Should I pay off debt or build an emergency fund first?

While paying off debt should be your first priority, having an emergency fund is still a good idea in case you face any unexpected expenses. Some experts recommend building out a small emergency fund of a few hundred dollars, or of one month’s essential expenses, and then focusing on paying off your debt before fully stocking your fund.

#What if I have to use my emergency fund?

If you have to use your emergency fund, make sure that the expenses you’re using it for are Essential, Immediate, and Unavoidable. If the expense meets this criteria, use it without guilt, and focus on rebuilding your fund straight away.

#Can You Keep Your Emergency Fund in Cash Instead of a Bank?

While it’s not a bad idea to have some cash on hand, especially for emergencies like power outages where card readers don’t work, you shouldn’t keep your entire emergency fund in cash. Not only will it not be accumulating interest, it’s less secure to keep and transport than keeping it in a bank, and you run the risk of losing it if it gets stolen or destroyed in an accident.

#Is an emergency fund the same as an “opportunity fund” or other savings?

No. Your emergency fund should be used for essential and urgent expenses only. You should keep a separate "opportunity fund” for other, non-emergency expenses.

#Do I need separate emergency funds for different purposes (medical vs. job loss)?

While you should keep your emergency fund in one account for ease of access and simplicity’s sake, you tally up your separate funds to calculate how much you need in your total fund. For example, on top of your three-to-six month fund for job loss, you can add in $500 for car emergencies and $1,000 for medical emergencies.