How To Build an Emergency Fund: 7 Steps for Beginners

I quit my job in December 2019. I felt tired, so I decided to take a short career break, gather my thoughts, and realize what I truly wanted in life. It was fine at first, but in a couple of months, COVID-19 spread across the globe, making a huge impact on the job market.

By the time I realized I needed a job again, it was almost impossible to get one. Companies put recruitment on hold, and competition for available positions skyrocketed. And I still had to pay for a living.

Good for me, I saved some money — enough to let me pay rent and buy essentials for the upcoming six months. I ended up with zero in my bank account. And I was happy the balance didn’t go negative — all thanks to my emergency fund.

In this article, I’d like to tell you about how you can build a financial safety net to handle emergency expenses. Read to explore the importance of having backup savings, how much you should save, and practical steps to build your emergency fund.

What Is an Emergency Fund?

When you keep a separate stash of money for unexpected situations, like medical bills, car repairs, or sudden job loss, it’s called an emergency fund. It’s there to help you avoid going into debt when life throws something at you that you didn’t plan for. Having a financial cushion available anytime means you can handle emergencies quickly and stress-free. And, of course, you can avoid credit cards and loans.

Why Build an Emergency Fund: Key Reasons

Many people worldwide struggle to cover urgent costs because they don’t have “rainy day” savings. In the UK, around 22% of citizens can’t afford an £850 bill, while about 33% of Americans have more credit card debt than funds for emergencies.

A financial cushion is what you need for financial stability. It gives you safety and peace of mind when it comes to life surprises. I can list no less than five reasons why you need it.

Protecting from Debt

Without savings, unexpected costs can force you to rely on credit cards or loans. This can lead to high-interest debt, making financial recovery even more complicated.

Covering Unexpected Expenses

Life rarely follows a script, and no one is protected from a broken appliance, a home repair, or an unexpected visit to a dentist.. Having a financial buffer means you can handle these situations without panic or stress.

Providing Job Security Buffer

As I noted earlier in this article, losing a job can be financially devastating, especially if you don’t have a backup plan. An emergency fund can cover essential expenses like rent, groceries, and bills until you find a new source of income.

Supporting Your Financial Goals

Without an emergency fund, you might have to take money from your retirement savings or other investments to cover urgent expenses. This can set you back on your financial goals.

Reducing Stress and Anxiety

Money problems are a major cause of stress, and 71% of people in the U.S. can confirm this. Knowing you have a safety net in place helps you feel more secure and prepared for whatever comes your way.

How Much To Save for Building a Financial Safety Net​

The ideal emergency fund depends on your lifestyle, income, and financial responsibilities. 

Although some experts recommend saving three to six months’ worth of essential expenses, it’s impossible for many people. I believe that the best way to build an emergency fund​ is to save as much as you can afford and do it regularly. Having something is definitely better than nothing — I’m telling you that from my own experience.

How To Start Building an Emergency Fund​ in 7 Simple Steps

Building an emergency fund doesn’t mean you have to save thousands of dollars overnight. It takes time, and even small contributions can make a difference. I’d like to share a few simple steps to help you build a financial safety net and avoid debt.

1. Set a Realistic Savings Goal

If saving several months’ worth of expenses sounds impossible, start with a smaller goal. Accumulating $500 is a great first target — it’s enough to cover small emergencies like car repairs or doctor visits. Once you reach that, aim for 2-3 months’ worth of essential expenses, and then slowly work toward more.

2. Save a Little at a Time

You don’t need to set aside huge amounts — even $5, $10, or $20 a week adds up over time. The most important thing is to get into the habit of saving regularly. If possible, set up an automatic transfer so you don’t have to think about it.

3. Cut Back Where You Can

If you’re struggling to find extra money, look at your spending habits. Could you make coffee at home instead of buying it? Cancel an unused subscription? Walk or carpool instead of driving? Even small changes can free up money to put into savings.

4. Save Spare Change

Some banking apps and financial tools allow you to round up purchases and transfer the extra change to your savings account. For example, if you buy a coffee for $3.75, the app rounds up to $4 and deposits $0.25 into your savings. Over time, these small amounts add up without much effort.

5. Use Windfalls Wisely

If you get a tax refund, a bonus at work, or unexpected cash, consider putting it into your emergency fund. Since this is money you weren’t relying on, it’s an easy way to grow your savings without impacting your budget.

6. Look for Small Ways to Earn Extra Income

If possible, consider picking up a side gig, selling unused items, or taking on small freelance work. Even earning an extra $20 or $50 a month can help you prepare for emergencies.

7. Rebuild If You Use It

If you need to spend your emergency fund, don’t stress. Just start rebuilding it as soon as you can. Even if you can only save a little at a time, getting back on track is what really matters.

Where To Keep Your Emergency Fund

Your emergency fund should be in a safe, accessible place where you can withdraw money quickly when needed. However, it should also be separate from your daily spending account to avoid temptation. Here are the best options for storing your emergency savings.

High-Yield Savings Account

A high-yield savings account (HYSA) is one of the best places to keep your emergency money. It earns more interest than a regular one, helping your money grow slowly over time. At the same time, it keeps your funds liquid, which means you can access them when needed. Many online banks offer these accounts with no monthly fees and easy transfers.

Money Market Account

This type of account is similar to a savings one but may offer a slightly higher interest rate. Some accounts also allow limited check-writing or debit card access, making it convenient while still keeping your money separate from daily spending.

Traditional Savings Account

If you prefer a local banking option, a traditional savings account at a bank can work. While the interest rates are usually lower than those of a HYSA, the funds are easy to access when you need them.

Certificates of Deposit

A short-term CD (three to six months) might be an option if you want to earn slightly more interest but don’t need immediate access to the full amount. However, CDs come with penalties for early withdrawals, so they’re not ideal for emergency savings unless you keep only a portion of your fund in one.

I usually keep my emergency savings in traditional accounts or stablecoins like USDT, just to get quick access when I need it. But you can choose what seems better for your needs.

Drawing a Line Between Emergencies and Whims

Not every unexpected expense is an emergency. A real one is something urgent and necessary. Medical bills, car repairs, or job loss fall into this category because they affect your health, safety, or financial stability. 

On the other hand, a whim is something you want but don’t need. A last-minute vacation, a new phone, or tickets to a concert might feel urgent, but they aren’t true emergencies. Even large expenses like replacing furniture or upgrading appliances don’t always qualify if they can be planned for in advance.

Before using your emergency fund, ask yourself:

• Is this expense unavoidable? — If it can wait, it’s not an emergency.
• Would not paying for it cause major problems? — If the answer is no, find another way to cover it.
• Did I have time to prepare for this? — If it was foreseeable, it should be part of your regular budget, not your emergency savings.

You need to be strict about what qualifies as an emergency to have your fund available when you truly need it. If an expense isn’t urgent, use a separate savings account or budget for it instead.

How Do You Build an Emergency Fund​ with Ease?

Life is full of surprises, and we can’t foresee them all. You never know when you need extra money to cover emergencies, and a contingency fund can help you handle them without taking loans. 

If you can’t afford to save big, start where it’s possible for you right now and gradually add to your emergency fund. It will grow over time and will likely save you from debt in a critical situation. Allocate money wisely and always be ready for the unexpected!