Everything to Know About an Emergency Fund
Your Financial Protection Against the Unknown
The fastest way to derail your journey to $100,000? Skipping an emergency fund.
An emergency fund is a crucial component of your financial journey, and many seem to overlook this fundamental step. I learned this firsthand. Skipping it left me worried, insecure with money, and trapped in a limited mindset. Once I built up 6 months of living expenses, I gained confidence, clarity, and a can-do attitude.
Don’t let a job loss, car repair, or medical bill completely take you off path to success with money. Avoiding saving for a rainy day may seem easier in the moment, but life happens, and a large expense can set you far back from your goals.
The Importance of an Emergency Fund
An emergency fund is a financial buffer that protects your progress that provides you with peace of mind during unexpected challenges or a season of hardship. It should be kept separate and used only for real emergencies.
What Qualifies as a Real Emergency?
Sudden loss of income or an unexpected layoff
Critical car repairs needed to commute or work
Unplanned medical bills or out-of-pocket healthcare costs
Urgent home repairs that affect safety or livability
Time-sensitive family situations requiring financial support
Pet emergencies
Temporary housing costs (repairs, lease gaps, displacement)
Insurance deductibles (car or home)
What does NOT Qualify as an Emergency?
Upcoming vacations
Down payment for a house
Planned car purchases
Luxury or above-your-means items
Remember: This fund is for emergencies only, not inconveniences or planned expenses. You’ll need additional savings in your HYSA for other goals.
What You Prevent Yourself From Without an Emergency Fund
Peace of Mind - Every unexpected expense becomes stressful without a buffer. Your decisions are no longer intentional, they’re reactive. Reactive decisions cause stress and anxiety that hurt you.
Flexibility - Without cash reserves, you’re forced into “whatever works for now” choices, often at the worst possible time.
Consistent Saving and Investing Momentum - Nothing in the bank? A lack of funds can tempt you into debt, selling investments prematurely, or pausing contributions towards your other goals.
Months (or Years) of Progress - Pausing savings to cover an emergency can be discouraging and make it harder to get back on track.
Ability to Take New Opportunities - Maybe you want to apply for new jobs or pursue a new opportunity. Without a safety net, career or lifestyle opportunities can feel too risky. Limiting your options has both financial and mental costs, creating a significant opportunity cost and the wonder of what could’ve been.
How Much Should I Save in an Emergency Fund?
Many experts, including myself, suggest saving a minimum of 3-6 months of your total living expenses.
How to Calculate Your Living Expenses
In order to find out what your monthly expenses are, you need to track them consistently. Doing so will provide you with an accurate picture. These include housing, utilities, transportation, groceries and other necessities. When you determine your monthly expenses, you establish a goal for yourself. Do this as soon as you can.
Many people can also include non-necessity expenses like entertainment, dining, gym memberships, or supplements. You don’t want your everyday pleasures and hobbies to completely pause during an emergency. Adding an extra 20–25% on top of essential expenses can give you breathing room.
Example:
3-month emergency fund (necessities only): $12,000
Add 20% for non-essential expenses: $12,000 × 20% = $2,400
Total emergency fund: $14,400
This extra buffer allows you to maintain normal day-to-day life without sacrificing your routines during an emergency.
By creating and maintaining your financial safety net, stress from work and everyday life feels lighter. You can pursue career or lifestyle changes with confidence, knowing you have a safety net to fall back on. Set this up, stay consistent, and watch your net worth grow. I’m happy to answer any questions you have about setting up your emergency fund, please feel free to reach out.
Do I Pay Off Debt or Build My Emergency Fund First?
This is one of the most debated topics in personal finance. Some experts argue you should fully build your emergency fund before focusing on debt, while others like Dave Ramsey recommend keeping only a $1,000 mini emergency fund while aggressively paying down debt.
I believe the best first step for most people is building the initial $1,000. From there, the right move depends on your full financial picture: job stability, total debt balances, interest rates, family responsibilities, and cash flow. Those factors should determine whether aggressively paying down debt with only $1,000 saved makes sense for you.
Personally, I fall somewhere between these two approaches. Having a small safety net of $1,000 is a great first step in your emergency fund, but it shouldn’t be the end of the conversation. At this point, I look closely at existing debt, starting with the total balance and then the interest rate. Credit card debt deserves special attention, as it typically carries the highest interest rates compared to student loans or auto loans. Paying this down quickly can free up cash flow much faster and provide meaningful financial relief. Average credit card interest rates currently sit around 21–22.5%, which is extremely high.
High-interest debt is generally considered anything above 8-10%, which can change your debt payoff strategy. In many cases, prioritizing the payoff of high-interest debt before building a full 3-6 month emergency fund is a smart and strategized move. Eliminating that drag on your finances often accelerates progress toward every other goal.
If you’re unsure which approach makes the most sense for your situation, reach out to me. I help people every day take the next best step toward their financial goals with clarity and confidence.
