Most people understand why an emergency fund is essential, yet the idea of building one can feel intimidating. When you’re balancing everyday expenses, repaying debt, or income shifts monthly, saving even a small amount can feel out of reach. And when financial advice starts with “save three to six months of living expenses,” it’s easy to shut down before you ever get started.
The truth is that emergency funds aren’t built overnight. They’re not one big goal to tackle right away. Instead, they’re a series of smaller steps that compound over time. Once you break the process down into pieces, saving becomes something that feels realistic – and something you can start today, no matter where you stand financially.
What is an Emergency Fund & Why Does It Matter?
Life is full of financial curveballs – a medical bill you didn’t expect, a car repair that can’t wait, or a week of lost wages after being sick. These situations happen more often than people realize, and they rarely arrive with much warning.
When there’s no savings to fall back on, many turn to high-interest credit cards or payday loans as a quick solution. While these options solve the problem in the moment, they can create even greater challenges as high fees and interest payments plague your budget for months to come.
That’s where your emergency fund shines. When you have money put aside, you can overcome the financial hurdle – but more importantly – you also avoid costly alternatives! And when you know you’re capable of handling the financial unknowns, your stress and anxiety disappear as well.
Part #1: Understanding Your Emergency Fund
The term “emergency fund” can mean different things to different people. For example, what qualifies as a financial emergency? What expenses are emergency funds intended to cover?
In this section, we’ll briefly answer these questions and provide a few examples to help simplify the concept of setting aside money to cover potential financial setbacks.
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Decide What Counts as an Emergency
Life can throw you a financial curveball at any moment. But not all unexpected expenses are emergencies, nor do they need to be covered by your emergency fund. A simple guideline can make decisions easier when you’re under pressure.
Ask yourself three quick questions:
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Was this expense unexpected?
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Is it necessary?
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Does it affect my ability to work, stay safe, or stay healthy?
If the answer is yes, then your emergency fund may be the right place to turn. If not, it may belong in your regular budget.
For example, if you decide to go to a concert with friends and now you don’t have money to pay your water bill, you can use your emergency fund to cover the cost. However, this isn’t an ideal situation. Instead, you should rework your budget to ensure you set aside appropriate “fun money” or find other ways to pay for the event outside of your emergency funds.
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Know What You’re Saving For
The term “living expenses” can feel vague, so it helps to define what you really need during your tough month. For most people, emergency-only expenses are narrower than everyday spending.
Common essentials include:
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Housing payments
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Utilities
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Groceries
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Transportation
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Insurance
Items like entertainment, travel, or subscription services usually aren’t part of an emergency budget. Once you strip the expenses down to what you truly need, the overall savings goal becomes far more manageable.
Part #2: Tips to Build Your Emergency Fund
Between everyday expenses, rising costs, and managing debt, finding room to build an emergency fund often feels impossible. In this section, we’re going to provide tips to get you started, help build momentum, and answer common questions.
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Start with a Small Safety Layer
Instead of jumping straight into several months of savings, begin with a small cushion. Many members start with a goal of saving $500 or $1,000. This amount handles the kind of surprises that happen most often – a sudden jump in your electric or gas bill, unexpected medical copays, or minor car repairs.
Even a small safety layer can help you avoid relying on high-interest credit cards or payday loans for urgent expenses. And reaching this first milestone builds confidence, which makes continuing much easier.
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Choose a Realistic Starting Amount
You don’t have to save a significant amount for your emergency fund to grow. Small, steady contributions often work better than occasional large ones. The key to saving is identifying a figure that is both realistic and manageable.
For example, you might begin by putting aside $25 weekly, $50 per paycheck, or $100 each month. Depending on your financial situation, it can be more or less – it just needs to be realistic. Too often, members try to put aside more than they can handle and ultimately find themselves draining their emergency fund before it ever really gets started.
• Set It & Forget It
As with any savings goal, the easiest way to keep it flowing is to automate the process. When money automatically flows from your paycheck into your savings, it’s one less thing to think or worry about. And, before long, you’ll likely forget the money is automatically transferring to your savings!
Two simple options to put your savings on autopilot are:
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Payroll Deduction: This tool from the credit union lets you assign a specific dollar amount from each paycheck to be automatically transferred to your savings account.
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Automatic Transfer: This tool allows you to schedule transfers on specific days you choose, for example, the 15th of each month. Unlike payroll deductions, automatic transfers are not tied to your paycheck.
Once automation is in place, your emergency fund will grow quietly in the background – with no effort from you!
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Where to Store Your Emergency Fund
The trick with an emergency fund is that you want the money close in case you need it, but not close enough that you’re tempted to spend it. The two best options for housing your emergency fund are a traditional savings account or a money market account. Both accounts are available at the Credit Union.
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Traditional Savings Account: When just starting to save, a savings account is the ideal choice because you can quickly transfer funds as needed, and there are usually no minimum deposit requirements. The Credit Union offers “Secondary Share/Savings” accounts, which have a low $25 minimum balance.
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Money Market Account: Once your balance begins to grow, consider switching it to a money market account. These accounts allow quick access to your funds in emergencies; however, they also earn significantly higher dividends or interest rates. Plus, the rates are usually tiered, meaning the more you save, the more you’ll earn. It’s worth noting that most money market accounts typically have a minimum balance you must maintain, such as $2,500.
You’ll typically want to keep your emergency fund out of Share Certificates (commonly called Certificates of Deposit). While these accounts earn more, you will likely incur a penalty if you withdraw funds before the certificate matures.
• Expect to Use It Before It’s Fully Built
Many people become discouraged when they must tap into their emergency savings early in the process – but that’s exactly what it’s for. Emergencies don’t wait until you reach your final goal, and using your savings doesn’t mean you’ve failed.
Think of it more as your emergency fund stepped in when you needed it. Once the situation passes, you return to rebuilding at your own pace. Over time, that build-use-rebuild cycle becomes familiar and far less stressful.
Rebuilding is a Natural Part of the Process
Once you use part of your fund, rebuilding it is often much easier. Now that you’re confident you can do it, you simply repeat the process as before – beginning with small, steady steps. You might even feel more comfortable now with increasing your savings contributions, allowing you to rebuild your emergency fund faster.
Most members will find that once they’ve used their emergency fund once, they value it even more and feel motivated to rebuild it. There’s no “wrong” timeline. Emergency savings are meant to move with your life, not work against it.
We’re Here to Help!
Building an emergency fund doesn’t happen overnight, nor does it need to. With a few simple habits and tools from the credit union, you can create a safety net that supports you during life’s unpredictable moments. Every small amount you save strengthens your financial footing, helps you feel more prepared, and alleviates stress before it even happens.
If you want to learn more about savings or money market accounts, or you’re interested in automation tools like payroll deduction, we’re ready to help. Please stop by our office or call 800-410-0501 to speak with a Member Service Representative today.