Finances & Money

Top 6 Ways to Build an Emergency Fund

An emergency fund is a lifesaver during critical times where a line of credit is not sufficient. You will not only have enough funds to meet emergency expenses but also you need not pay any interest or extra expenses.

Building a fund is not difficult, though maintaining it is. Many feel that just saving some money each month is sufficient as an emergency fund. But without a proper plan, you cannot maintain such funds on a regular basis. What happens if you come across a season sale? Or the latest smartphone? It is easy to spend the saved funds on such expenses, thinking that you can always save later.

This is why you need to plan to build an emergency fund. Let’s discuss top 6 ways where you can easily build a fund that you can continue to maintain for a long term.

1. Plan How Much You Need In a Fund

This is the first step. How much do you need in your fund? There is no specific margin for this as it depends on your income, budget and expenses. So, write down your total income and expenses each month. Check how much money you can afford for the fund.

Also, check how much funds would constitute as a proper emergency fund based on your standard of living and the economic rates in your area. Once you get a specific figure, check how much you can keep aside each month to reach that figure. See whether your monthly contribution will fit your budget. Once you determine this, it’s time for the next step.

Things to Do:

  • Decide how much you need.
  • Plan how much you can contribute each month.

2. Determine Where to Keep Your Fund

Your fund must be easily accessible when you need it. A regular savings account would be suitable. Ensure the bank is nearby for situations where you may have to withdraw a large sum. Also, check whether there are sufficient ATMs across your city so that you can easily access your fund.

Go for a savings account that earns you interest on your savings. Also, an account that does not charge you any penalty fees for withdrawals at any time is ideal.

Things to Do:

  • Open a regular savings account.
  • Contribute to the account each month without fail.

3. Make Your Contribution a Part of Your Budget

As you plan your fund and your monthly contribution, stick to the plan each month. It is better to transfer money to your fund as soon as you get paid each month. This way you will not risk using that money for other expenses.

If you come up against unexpected expenses, do not immediately use your fund contribution to meet those expenses. See how you can work around your budget to ensure your contribution does not stop. If you skip contributing for one month, then it becomes easy to skip subsequent contributions as well. Maintain regular contribution each month.

Things to Do:

  • Contribute the planned amount to the fund every month.
  • Work around your budget, and do not skip even one contribution.

4. Cut Unnecessary Expenses

All of us indulge in unnecessary expenses once a while. Maybe it was a pair of shoes on sale, but that didn’t fit. Or it could be any impulsive spend that you regretted later. Check where you can cut down on unnecessary expenses.

You don’t have to buy things that you do not need or never use. You don’t have to force yourself to go to social parties or events when you don’t want to. You can even think of eating at home rather than dine out frequently. Based on your lifestyle, you can cut down expenses that are not required.

Things to Do:

  • Identify areas to cut down expenses.
  • Avoid expenses that are not required or necessary.

5. Make Use of Additional Income

You may come across some additional income, such as monetary gifts from family, or your annual bonus. You may receive a refund on your taxes. Or, even some extra money from selling unused items at home.

Whatever is the source of your additional income, do not spend it immediately. Contribute it to your fund. Even if you need to use that money for other expenses, at least put a part of it in your fund.

Things to Do:

  • Save any additional income.
  • Contribute at least a part of it to your emergency fund.

6. Use Your Fund Only for Emergencies

This is the most important part of building a fund. You need to use it only for emergencies. What constitutes as one may differ based on your financial standing. But, remember not every unexpected expense can be called as one.

A medical illness and treatment is an emergency. So is the loss of your job. Unexpected home repairs or vehicle repairs are urgent and important. A sale is not an emergency, neither is a dinner with friends. So, it is imperative to use your fund wisely only for actual emergencies.

Things to Do:

  • Decide what constitutes as an emergency.
  • Use your fund only for that reason.

What to Do When You Have Depleted Your Fund

If you have spent your fund on any emergency situation, then build over again. Since your fund helped you at a critical time, you would have realised its importance. So, build your fund from scratch using the same ways you used before.

Also, keep a check on your fund, and see whether you can increase your contribution each month or at least at every 3 months. Assess and adjust your contributions as per your current income and budget.

Use Your Emergency Fund Wisely

You can easily build a fund quickly with self-discipline and a strict budget. Use that money when you need it. If you have depleted your fund, then replenish it as soon as you can. When you use it wisely, an emergency fund will be your friend when you are in need.

Managing your finances now will contribute to a stable financial standing on a long-term basis. offers quotes and detailed information about various financial products. Use this information to gather more knowledge so that you can derive the maximum benefit out of banking products and services.


About the author

Susan Paige

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