What Is an Emergency Fund?

You should save enough money in an emergency fund to cover three to six months' worth of your living expenses. This ensures you have enough money to survive while you look for a new job or manage a temporary financial setback, and it may also prevent you from falling into debt.

An emergency fund is money you set aside to use for unexpected events such as an expensive car repair bill or a job layoff, and it should be considered separate from your long-term savings goals. It is difficult to save three to six months' worth of expenses, but there are steps you can take to work your way there.

How to Build an Emergency Fund

1. Set a goal.

Most experts recommend saving three to six months' worth of your living expenses in your emergency fund. So, add up your expenses for the month and multiply the total by six to see how much money you need to save.

2. Make a budget.

List your income and expenses and see where you can cut spending. Put the money you save into your emergency fund.

3. Automate savings.

Set your checking account to automatically transfer money into your emergency fund, so you won't have to remember to do it every month.

4. Start small.

Aim to have $500 or $1,000 in your emergency fund as quickly as possible.

5. Keep going.

Once you've reached a small amount, work up to saving one month's worth of expenses, then two months, etc. Keep going until you reach at least six months' worth of living expenses. Ultimately, we recommend continuing to 12 to 18 months' worth of expenses so you have a bigger financial cushion.

Using different budgeting strategies, such as the 50/30/20 budget rule or the pay-yourself-first budget, can also help you come up with a plan to reach your emergency-fund goals. In addition, the best budget apps can help you keep track of your progress toward those goals.

Where to Put Your Emergency Fund

You should put your emergency fund in a savings account. Unlike certificates of deposit or investment accounts, this allows you to have easy access to the money in an emergency without facing a penalty for early withdrawal or the funds losing value. Savings accounts also yield interest that can grow your money over time.

For account options, check out WalletHub's picks for the best savings accounts. You can also check out our best budgeting tips for information on how to save money for your emergency fund.

You should save at least 20% of your income each month, according to many financial experts. This number also aligns with the popular 50/30/20 rule, which requires you to put 20% of your income toward savings, while 50% goes to your necessary expenses and 30% is used for discretionary spending.

Saving 20% may not work for everyone. In fact, the current savings rate in the U.S. is 4.6%, according to the latest data from the...

First of all, congratulations on being mindful of your monthly expenses/savings. If it doens't already, your budget should include your income as well as your expenses. Once you have totalled each of those against each other, see what you're left with. Assuming your expenses are below your income, can then decide how much of the excess you want to save, and how much you'll allow yourself to spend on miscellaneous items. 

Let's say after you...

You should keep three to six months' living expenses in your savings account, plus a bit extra. Most experts recommend saving enough money to live on for the amount of time it would take you to find a new job if you were to lose yours and adding a little more for emergencies.

How to Determine How Much You Need to Keep in Savings

1. Split your purchases into two categories: fixed and...

The best way to budget your paycheck is to put 20% of the money into savings, allocate 50% to necessary expenses like food and your mortgage/rent, and use the remaining 30% for fun and other discretionary spending. This is called a 50/30/20 budget. 

There are other budgeting strategies you can try, too. But no matter how you decide to allocate the money from your paycheck, you will need to make a list of your expenses...

Just to add to Dmitriy's response. When it comes to splitting between investing accounts and savings accounts it also matters when you expect to need the money and how safe it needs to be. For example, if you are only saving for retirement, which might be 30 years from now, then once you have a good emergency fund in a safe savings account you can probably invest more. If however, you are saving for a...

Putting your emergency fund in a no-penalty CD can make sense, but it depends on how much flexibility you need.

A no-penalty CD gives you a fixed interest rate which could beat the rates you get from most savings accounts. However, it's not as liquid as a savings account, and some no-penalty CDs limit withdrawals to once per term or require you to take the whole balance, not just a portion.

For an emergency fund,...

Hi! It is great that you have saved so much for your emergency fund! Your emergency fund money should be “liquid,” which in financial terms means accessible when you need it. It's recommended that people have an emergency fund of 3 to 6 months money to cover essential expenses. For example, imagine a married couple live in a small town and work at the same plant. It closes suddenly and both earners are out of...

To build a financial cushion, you should make a budget, find ways to cut spending to free up money, and set a goal for how much you want to save. It's also easier to build a financial cushion if you pay down debt, find ways to increase your income, and automate your savings.

A financial cushion is similar to an emergency fund. It's money you set aside to pay for unexpected costs, such as car...