Emergency Savings Account + Why You Need One

An emergency savings account prepares you for unforeseen expenses. This post discusses how much you need and how to achieve that goal!

A regular savings account is for achieving goals like a vacation, new furniture, or a car. An emergency savings account is separate from that and only meant to be used in the case of an actual emergency.

Having a financial cushion prepares you for unexpected expenses. Recently, I needed about $4000 worth of dental work done, and even though I hated taking that money out of my savings, I was grateful to have it. I also went through tonsil cancer treatment at the beginning of 2023, and cancer isn’t cheap. We have fantastic insurance, but no one prepares you for everything you need before, during, and after treatment.

In both situations, I was so grateful for our emergency savings account. That extra money also allowed my husband to come home from Iraq for three months without financially burdening us. Life throws curveballs at you all the time, and having that financial cushion can at least help you get through it without stressing about money!

Emergency Savings Account

Job loss, medical bills, veterinary expenses, and home repairs are just a few of the things that can create a financial burden. It can happen to anyone at any time. We can’t predict when something like that will happen, but we can be financially prepared!

How Much Do You Need

Most of the advice I see online is to have three months’ worth of bills in your emergency fund. I disagree and think you should save at least six months’ worth of necessary bills. I say necessary bills because if you find yourself in this situation, unnecessary spending will only make things worse.

For example, if your necessary bills are rent or mortgage, utilities, groceries, and gas. Add those up for one month and multiply the total by six. That’s the minimum amount you should have in your emergency savings account to protect you financially for six months in the event of hardship.

I recommend six months’ worth of bills instead of three, which is usually what’s recommended. If you experience job loss or an expensive home repair, three months’ worth of bills will be wiped out immediately. Setting a six-month goal will most likely leave some in savings, which means you still have some cushion.

Budget Tools
Income + Expense Tracker	Money Tracker Pad	Monthly Budget Book

How To Build An Emergency Fund

Once you’ve determined how much you need to survive for six months, you have a goal. I’ll post my example below.

Mortgage $1435
Utilities $475 (this is a HIGH average)
Car Payment $376
Car insurance $221
Credit cards $100 (we usually keep these paid off)
Groceries $500
Gas $200 ($50 a week)
Miscellaneous $400 ($100 a week)

Total: $3,707 per month
Multiplied by 6 months = $22,242

If we hit rock bottom, we would need $22,242 in our emergency savings account to keep a roof over our heads, our utilities working, and food in our stomachs for six months. You’ll notice that I always have a small amount for miscellaneous expenses, and that’s because necessary things still happen, like your kids getting sick. Also, I could get that grocery bill down if needed, and I have written several articles on how to save money on groceries and food.

How To Build An Emergency Savings Fund

Try not to let the number above discourage you. It’s simply a starting point. If the six-month number completely overwhelms you, start with a three-month goal or take it a month at a time. An emergency savings account of $1000 is better than nothing. That six-month total is what we recommend in the event of total income loss or a significant event, but the chances of that happening are less than something like an HVAC unit going out or expensive dental work, so you’ll still have income coming in.

Save Your Money

To reach your goal more quickly, save as much as possible and put the extra money into your emergency savings account. A penny saved really is a penny earned, and we’ve shared several ways to save money on the site.

If you’re a spender, you must get your spending in check. Those Starbucks and McDonald’s drive-thrus add up. Did you know that $10,000 a year is only $27 daily? How many times have you spent $27 in a day that was 100% unnecessary? I’m not saying you should never treat yourself, but getting your spending in check will help you build an emergency savings account more quickly.
Immediately deposit any extra money into your emergency fund. I recently received a $1700 check from Vanderbilt, which immediately went into our emergency savings account!
Get control of your budget. When we started tracking every penny we spent, we had much more money than we thought. I started doing this over 20 years ago, and I started with a notebook and pen. I left that notebook on our kitchen counter, and we would write anything we had spent in it daily. These days, I do it in a spreadsheet. The first thing I do every morning when I sit down with my coffee is check the bank account and enter anything that came out the day before. My spreadsheet is organized into necessary and unnecessary spending. I keep an eye on unnecessary spending, and I can’t tell you how much this helps keep us in check. If you think you don’t have any money to save, you might be surprised.
Once you start saving money, immediately put the extra cash into your emergency savings account. I love an automatic withdrawal for this. I recommend a specific type of account, which I’ll discuss below. Whether it’s $25 a week or $100 a week, start an automatic withdrawal as soon as possible. Chances are, you’ll forget it’s even coming out. We do.

Make Extra Money

There are many ways to make extra money, and my husband and son both have side hustles to earn extra cash. The more extra money you make, the more you can put into savings.

Side hustles are a great way to earn quick and easy cash. My husband drives for Uber often throughout the year, and he can usually earn anywhere from $150 to $500 extra a week, depending on how much time and effort he puts into it.
My son started a handyman business, and it’s been a great little side hustle! He’s done everything from cleaning out gutters to hanging ceiling fans to small demolition jobs. If you put the word out to family and friends, you could be making money by the end of the week—my son did! Everyone needs a good handyman, and most of his work now comes from repeat customers.
For ideas on how to make extra money, check out this blog post.

Where To Put Your Money

I’m an expert on my spending and savings, but I am not a financial expert, so I feel the need to add that disclaimer—ha!

I highly recommend a high-yield savings account, which pays more interest than a standard bank account. For example, our savings account with USAA only pays out 0.1% interest, while our high-yield account with Ally pays 4% interest. That interest is added to the principal balance, and more interest is earned on that balance. Your money is literally making money while it sits there.
We have an automatic transfer that withdraws the same amount weekly from our checking account and goes into our high-yield savings account. It’s an automatic deposit, so we don’t even have to think about it. Keeping your savings in a regular savings account means you’re missing out on free money.

I hope this post has given you some helpful ideas for building an emergency savings account. If you have any suggestions, please share them in the comments below. I’d love to hear it, and it will help other people, too!

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