NDSU Extension Service - Ramsey County


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Building an Emergency Fund

Building an Emergency Fund


In life you should expect the unexpected, and this is why you need an emergency fund. Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of.  The best you can do is to prepare for emergencies that require access to additional money and having an emergency fund is the ideal solution.

An emergency fund is money set aside in a readily accessible savings account for unanticipated events such as unemployment, medical bills, and car repairs. A standard recommendation is for an emergency fund to equal the amount of money needed to cover basic living costs for three to six months.  Depending on your specific situation and whether or not you have children, carry substantial debt and the types of insurance coverage you have, will all determine what amount is best for you.

Emergency funds should include liquids assets.  Liquid assets are those that:

• Can be easily converted to cash.

• The majority of these funds should be in accounts that have easy access, like checking accounts.

• Regular or passbook savings and money market accounts are other options.

• Short‐term CDs may offer higher interest rates, but ask about early withdrawal penalties.

Try to distinguish between needs and wants when determining how much you need to keep in the emergency fund.   The exact amount you should have can vary depending on your access to paid leave time from an employer or even access to other financial resources. Other resources would include the types of credit you have and the credit terms and payment options for each source.

If you currently don’t have an emergency fund or find it difficult to save money the key is to start small. A good way to get started is through an automatic withdrawal from your checking account. Always use your emergency money only for a true emergency, like medical expenses or essential auto repairs. Don't use it for luxuries. With a steady source of income and keeping it untouched, your emergency fund will grow steadily.

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