How to Start an Emergency Fund: 5 Simple Tips for Saving Money

By Joey Johnston

Financial experts don’t always agree on everything, but there’s one piece of advice we can all get behind: everyone needs an emergency fund. 

Having money saved for emergencies will prevent bad situations from turning into catastrophes. For example, if you lose your job or need a major medical procedure, emergency savings can help you cover your expenses without having to scramble for money.

But what if you have no money in savings — as in zero? What do you do if you’re living paycheck to paycheck and you can’t figure out how to set money aside? If that’s you, here are some simple tips for getting started with building your emergency savings.

What is an emergency fund?

An emergency fund is money you save to help you cover unexpected, emergency expenses. 

We generally recommend saving between three to six months’ worth of your living expenses, that way you can fully replace your income in a worst-case scenario, like losing your job. But your emergency savings can also help you cover other needs too, like unexpected car repairs, emergency travel or medical costs.

If you don’t have this money saved up, you may be forced to cover your expenses in ways that damage your finances. 

“If there’s an unexpected shock that comes about, there are so many Americans who can’t find ways to cover it,’’ says Annamaria Lusardi, Director of the Initiative for Financial Decision-Making at Stanford. “If we go back to a recession, so many people could find themselves in dire circumstances… Many people [will] go to their credit card to deal with the shock.” 

5 ways to start saving for emergencies

If you don’t have any money saved up yet, creating a fully-funded emergency savings account can seem impossible.

“It is pretty daunting for many people to even think about having three months of living expenses because that goal can seem insurmountable,’’ says Laura Adams, host of Money Girl podcast.

If you feel like it’s impossible, keep this in mind: As you’re working toward your goal, every dollar counts. Here’s how to get started.

1. Identify your roadblocks

Before you start making changes to your finances, such as looking for a second job, make sure you understand why you haven’t been able to save money. In other words, take the time to review your spending and see if your lack of savings is due to an income shortage, a self-discipline problem or something else. 

You can do this by looking at your last three months’ worth of bank statements and credit card statements, and listing out all of the expenses that are unnecessary or can be reduced. By making your list, you may find that there are plenty of expenses you can cut to help you jump-start your emergency savings.

2. Open a dedicated savings account

If you don’t have one already, open up an account to use exclusively for your savings. That means it’s an account you won’t dip into for things like shopping sprees or other non-necessities. And when you withdraw money to cover an emergency, you’ll make a point to replenish it.

To find the best savings account, try searching for a no-fee, high-yield savings account (HYSA) at a credit union or bank. These accounts pay higher interest rates than regular savings accounts, which means your savings will earn more money while it sits on deposit.

3. Start small and build up your contributions

Once you have an emergency savings account, ask your HR representative or payroll department to set up an automatic deposit to the account from every paycheck. 

“It’s about forming habits of saving,’’ Adams says. “Even if it’s just putting away $25 a month or $50 a month, it’s a positive step.”

Over time, you can increase the amount you contribute. Here are some occasions when we recommend making an increase:

• You receive a raise or a promotion
• You pay off debt
• You receive a tax refund

4. Get help from the professionals

If you’re not making much progress, it doesn’t hurt to get a second pair of eyes on your finances. An NFCC-certified credit counselor can review your finances and help you speed up your savings progress in a number of ways. 

For example, a counselor can go over your budget with you and point out costs that can be negotiated or cut. Your credit counselor can also review your debt and help you determine if you have an opportunity to refinance your loans and get lower monthly payments.

Alternatively, they might suggest enrolling in a Debt Management Plan (DMP), which can allow you to consolidate your monthly payments and make them more affordable. 

5. Increase your income annually

If your income is limited, cutting expenses can only take you so far. 

As the cost of living increases — which it does each year — your income will have to increase just to keep up. So if you’re not getting annual pay increases, you’ll find it harder and harder to save money each year.

There’s no one-size-fits-all solution for increasing your income, but there are a number of options that could work for you, including:

• Looking for a new, higher paying job
• Seeking a promotion with your current employer
• Taking on a seasonal, side gig
• Picking up a second job
• Working overtime hours

It could also pay to declutter around the house and find valuables, like sports equipment or electronic devices, that you can sell on Facebook Marketplace or through consignment. These sales won’t make up for long-term income shortages, but they can certainly help you jump-start your emergency savings.