An emergency is stressful, disruptive, and unavoidable.
When it rains, it pours.
According to a new survey from Bankrate, just 39% of Americans could afford an unexpected expense of $1,000. That is fewer than 4 in 10 Americans.
If you want to stay calm during a rough financial storm, you NEED an emergency fund.
Here is what you will learn in this post:
- What is an emergency fund?
- Why should creating an emergency fund be a top priority?
- Twenty emergency fund examples
- Where should I keep my emergency fund?
- How to build an emergency fund
- How big should your emergency fund be (save a $500 emergency fund, 10k emergency fund, or $30,000 emergency fund)?
- FAQ on financial emergency examples (e.g., Is $1,000 enough for an emergency fund?)
Ready? Let’s get started.
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What Is An Emergency Fund?
An emergency fund is where you stash your money away for emergencies.
The fund should be enough to support you with all the high costs and daily living expenses.
It’s sometimes called a rainy day fund. But they are differences between an emergency fund and a rainy day fund.
Rainy Day Fund VS Emergency Fund
A rainy day fund is usually used to cover small financial hiccups (like repairing your washing machine and fixing a broken tire), whereas an emergency fund is saved for major, unprecedented life events (like job loss and hospital bills).
Emergency Fund VS Savings
An emergency fund is a type of savings fund to provide you with financial security when there is a major economic change like paying for medical care or house repairs.
However, a general savings account is for a planned expense in the future, such as a Christmas savings account or a wedding fund. You can open as many savings accounts as you like to cover your specific needs.
Read on:
Why Should Creating An Emergency Fund Be A Top Priority?
Your emergency fund is like a financial safety net to help you weather the storm when unexpected events pop up out of nowhere.
So you DON’T have to
- borrow from friends/parents,
- drain your retirement fund,
- ruin your monthly budget,
- rack up unwanted credit card debt and have the stress of paying off debt,
- take personal loans when things go wrong.
💡 Note: Using credit cards to cover unexpected expenses could leave terrible long-term consequences to your finances.
Should You Pay Down Debt Or Save For AnEmergency Fund First?
Reasons Why You’ll Always Be Broke
20 Reasons To Have An Emergency Fund – Emergency Fund Examples
Emergency Fund Examples At Work
Job Loss
Believe it or not, unexpected layoffs happen all the time.
Maybe the business is failing; your employer is forced to close down.
At the last minute, you thought you had the most secure job. Then all of a sudden, you became unemployed.
The situation is worse for part-time or contract employees who only have unpaid time-off (a.k.a., temporary layoff).
Even staff from government or employees from billion-dollar companies could experience redundancy, let alone those who work for private business owners.
Without an emergency fund, you might just settle for the first available job because you need the money to pay the bills (e.g., rent, utilities, and food).
However, if you have enough savings to support your current lifestyle for at least three to six months when losing a job, that’s a huge relief, especially if you live paycheck to paycheck.
Irregular Income
Are you a freelancer with unpredictable income or do you have a commission-based income?
Maybe you have just quit your day job to be a solopreneur, but you have no idea when your small business will start to take off.
Then an emergency fund can help a LOT during the low-income months.
Stow some cash just in case.
Car Expenses
If you are one of those people who need your car for work, pay close attention to these expenses.
From minor fixes to major repairs, it’s inevitable to pay for unexpected car expenses at some point in life.
Some common car problems include:
- Flat tires
- Battery replacement
- Brakes repair
- Coolant system services
- Engine replacement
Sometimes, minor problems could become big without immediate attention, costing you thousands of dollars.
Even though you have auto insurance, you might still need to pay for some expenses out-of-pocket.
Don’t forget you also need to pay for alternative means of transportation (like carpooling, public transportation, or car rental) before your car has been fixed.
Moving Expenses
It’s not uncommon for companies to relocate their staff.
And not every time will your company reimburse your moving expenses.
Are you able to afford the moving-related costs? If not, it’s time to build an emergency fund.
Pay Cut
It will be challenging if you have a drop in income, especially if you only have a single payment.
However, your emergency fund could buy you some time to work out your next move.
Unexpected Tax
Are you surprised that you actually owe the government money when you expect a tax refund from the IRS?
Whatever the reason is, you want to file your tax return on time and pay back the owed money to avoid possible interest and penalties.
You will do yourself a big favor if you have a sizable emergency fund.
Medical Bills
You might not need a lawyer that often, but medical bills are unavoidable in life, no matter how careful you are.
We are not talking about minor incidents like finger cuts here.
It could be a broken leg on a day trip that stops you from working for a month.
Or, severe injuries from a car accident could cost you hundreds of thousands of dollars. And the unpaid time-off is not included.
Medical bills pile up quicker than you think, even with medical insurance.
However, if you have a fully-funded emergency fund, your daily life won’t be disrupted by the expensive bills. Plus, you don’t have to compromise your health.
Family/Relationship Reasons For An Emergency Fund
Financial Arguments
Did you know many relationships fall apart because of financial stressors?
Start your new life with your spouse with an emergency fund to save your marriage from fighting over money.
Ugly Divorce
It’s natural that married couples want to live happily ever after.
However, in reality, the divorce rate is high. And separation comes with a hefty price tag.
When a relationship ends, a wish of an amicable divorce can turn into an ugly divorce if your spouse files for divorce.
The whole process could be exhausting and frustrating (emotionally and financially).
You will be facing attorney’s fees (far more than thousands of dollars), but you might also need to bear other costs like moving out or child support.
Expecting the unexpected by setting money aside could make you feel less financially vulnerable.
Unplanned Pregnancy
It’s no secret that having a baby costs a fortune.
A surprise pregnancy can easily wreck your finances without question.
Having an emergency fund could bear some associated costs when you enter a new chapter of your life.
Pet Emergency
Veterinary visits are not cheap, especially for emergency visits.
Can you afford a furry friend when emergency pet care is needed?
Depending on the treatment, on-call vets can cost anywhere from $100 to $20,000 (source). Shocking!
Having good pet insurance is not enough.
Claiming your insurance might take time (sometimes a long time for big bills) and “I need emergency money now.”
In that case, a contingency plan is a MUST for every pet owner to ensureyour pet gets the best care possible.
Unplanned Travel Expenses
Many reasons cause unexpected travel. The most common one could be attending a funeral.
When the urgent occasion comes, it’s tough enough to deal with the grief and loss. And financial concerns will only make the situation more miserable.
A sufficient emergency fund could eliminate the money worries when you need to travel to a funeral and support your loved ones financially (e.g., bear the costs of burials and ceremonies). So you can focus on more urgent matters – the actual emergency without a money problem.
Emergency Fund Examples At Home
Home Repairs
Being a homeowner is fantastic, but paying for home repairs is not.
It’s inevitable that some parts/home appliances get old and break in the house. And it’s hard to predict when they will stop functioning.
On top of that, some homeowner policies require you to pay thousands of dollars out of pocket before the deductible.
You’d wish you could tap your emergency savings to buffer against unexpected repairs in times like this.
Rent Increase
Rent increase is a pain in the neck for all tenants.
If your landlord puts up the rent, you can choose to pay or find another affordable place.
This is where an emergency fund comes in handy.
Related: Crazy-Easy Ways To Reduce Your Rent
Eviction
House hunting is as stressful as job hunting if your landlord evicts you.
Locating an affordable place takes time and money.
This is another good reason you want to have an emergency fund in place.
Other Reasons You Need Emergency Savings
Stranded Abroad
When you are outside of your home country, things could get worse without a financial cushion.
For example, you might lose your passport and get robbed on a Sunday afternoon.
On top of that, your visa is expiring the next day, meaning you have to leave the country tomorrow.
But without the passport, there is nowhere to go. And the immigration office doesn’t open at weekends.
This happened to me once when traveling abroad in my early 20s.
The mounting stress and extra travel costs (documents, flights, hotels, and food) put me in a terrible financial situation.
I had to freeze all my bank accounts, wait until Monday to contact the immigration office, and obtain a temporary travel document before getting a new passport.
Fortunately, I had a separate emergency account to carry me through. The emergency cash was transferred and withdrawn within an hour.
Electronic Devices Replacement/Repairs
I remembered when I accidentally dropped my phone, hitting hard on the floor, luckily, only the screen was broken.
However, I still paid $220 for the screen replacement out of pocket. I certainly didn’t see that coming.
Smartphones, tablets, and laptops are expensive, so are the replacement/repair prices.
Make sure you have a bit of money tucked away for a scenario like this.
Identity Theft
Cybercrime is a real thing.
Your personal information gets stolen, money is gone, and your credit card is maxed out.
If that happens, it might take a couple of days or weeks to reaccess your cards and accounts.
So having extra emergency cash to cover your daily expenses would be a life-saver.
Natural Disasters
Hurricanes, earthquakes, and wildfires, you name it.
Surviving a natural disaster is not easy emotionally and financially.
If your car, house, and family have been affected by a natural disaster, you want an emergency fund that helps you get through and cover the expenses when your insurance doesn’t.
Peace Of Mind
If you need an extra reason to save for an emergency fund. This will be it.
Life is full of surprises (good and bad). You never know what you will get.
When you are financially desperate, you are more likely to make bad money decisions.
That’s why it’s worth all the effort to pay off unforeseen expenses using the emergency fund and come out debt-free.
You will be way ahead if you have some money saved.
Where Should I Keep My Emergency Fund?
The best place to keep an emergency fund is to open a separate high-yield savings account so that you can withdraw the money quickly without penalties.
Unlike traditional banks, many online banks offer a much higher interest rate. Although you are not aiming to make money from the account, you can still earn some interest.
Alternatively, you can also try to stash the cash in a cool piggy bank at home for easy access.
How To Build An Emergency Fund even On A Tight Budget
Are you struggling to save for an emergency fund? Here are some tips to help you.
Prioritize Your Emergency Savings
Pay yourself first by allocating a good portion to your emergency fund before spending any money each month.
Read on: Which Payment Type Can Help You Save The Most Money?
Open A Separate Savings Account
Don’t set the money aside in your regular checking account for your emergency fund. Use a separate savings account instead.
Doing this makes you less likely to dip into youremergency account for any expenses that are not considered emergencies (such as a weekend vacation or a parking ticket).
Set Up An Automatic Transfer
Automating your savings could save you lots of time.
Plus, you will be less tempted to spend the money.
Save Your Financial Windfalls
Don’t have enough money to save up for your emergency fund?
Consider contributing your year-end bonus, pay raise, tax refund, gifted money, or inheritance to the account to grow the fund.
Review Your Finances To Create Some Wiggle Room
Check your net income, expenses (essential bills and discretionary spending), and spending behavior regularly with your budget to find some wiggle room for your rainy-day savings.
Maybe you need to cut down on unnecessary expenses (like canceling the unused premium gym membership) and learn the best frugal tips to save more for financial surprises.
Read on: Things You Can Quit Buying To Save For Your Emergency Fund
Start Small
Every little bit helps when it comes to saving for an emergency fund.
You can start by making small, regular deposits. Slow and steady wins the race.
The point here is to form a habit of saving.
Save More
When you get better at handling your finances, increase the number to save more.
Say you used to save $100 per month, try $150.
Save more to stay on the financial track and hit your financial goals faster.
Don’t Touch Your Emergency Fund Unless It’s Badly Needed
The emergency fund is ONLY for emergencies.
Don’t tap into your emergency fund for payments like beauty treatments or yearly car registration fees, as they are planned expenses that you could anticipate.
Also, buying a birthday gift for your BFF is not an emergency, nor is needing to dine out with your friend.
Replenish Your Emergency Fund
Keep the momentum, and don’t fall short on emergency savings.
If you ever used the emergency money to cover expenses that are not in your budget, remember to top it back up.
Start A Side Hustle To Meet Your Savings Goal Faster
If asking for a pay raise is not an option at the moment, you can start a side hustle to earn more money.
For example,
- Use your in-demand skillset to become a freelancer on Fiverr or Upwork.
- Sell your unwanted items online with the Decluttr app.
- Starting a profitable blog is also a great option, like what I did in my free time.
- Earn a little extra money in your free time each month by taking simple surveys (such as Survey Junkie). It’s easy and fun.
Further reading: How To Make $1,000 During Your Spare Time With Your Smartphone
FAQ On Emergency Fund Examples
How Much Do I Need In An Emergency Fund?
There is no fixed rule for an emergency fund amount. How much ($500, 10K, or 30k) should be in an emergency fund depends on your family size, monthly expenses, financial goals, and risk tolerance level. Many finance experts suggest saving up three to six months’ worth of living expenses. For example, if your overall monthly expenses are $3,000, aim to save $9,000 to $18,000. However, saving up 12 months’ worth of living expenses ($36,000 in this example) would be even better.
Is A $1000 Emergency Fund Enough?
$1,000 is a good starting point to form the habit of saving.This could cover small incidents like replacing a flat tire. Dave Ramsey also suggests starting with $1,000 if you have consumer debt. However, you will need to save more than that to cover the costs for major emergencies, as one emergency room visit could empty your savings account ($1,000).
What Are The Benefits Of Having An Emergency Fund?
An emergency fund serves as a big financial blanket for any unforeseen challenges in life. It gives you financial flexibility and stability to cover all your living expenses without going into debt when the unexpected happens.
Why Should Creating An Emergency Fund Be A Top Priority?
An emergency fund is an essential part of financial planning. You will be much more confident to deal with future mishaps with a well-managed emergency fund.
I hope these emergency fund examples could inspire you to start saving a pot of cash aside.
When the next random emergency pops up, you will have a healthy savings account to pull from. We can always hope for the best but prepare for the worst-case scenario with a substantial emergency fund.
My readers, do you have an emergency savings account or are you planning to have one?
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