Home > Personal Finance > 3 Simple Steps to Starting an Emergency Fund

Comments 0 Comments

What will you do when faced with an unexpected expense of, say, $400? A 2016 study from the Federal Reserve found 46% of Americans didn’t have enough funds to cover an unexpected expense of that amount. So, how did they manage to pay for it? Possibly by using their credit card or doing the unthinkable and asking for money from friends and family, which is never fun.

The issue here is that emergencies are bound to happen, as they do to all of us. So, it’s best to be prepared because one of the easiest ways to get into debt unexpectedly, and damage your credit score in the process, is by paying for an emergency car repair or medical expense with plastic — and no plan to pay it off quickly.

If you have been working hard to repair, maintain and improve your credit score, one of the best ways to avoid destroying all your hard work is to have an emergency fund you can use for unexpected expenses. (You can see how your debt may be affecting your credit by viewing two of your credit scores for free on Credit.com.) Remember, it’s best to only use your revolving credit, or credit card, for planned expenses you know you can pay off.

With that in mind, here are three simple steps to get you started on building an emergency fund.

1. Know the Difference Between an Expense & an Emergency

Buying a fancy dress for the big party on Saturday night is not an emergency (even though it feels like one). So make sure you are budgeting correctly and planning for expenses that you know are coming up. For example, you should have your car tuned every year or your home painted every five years. These can be major expenses, but, again, they are not emergencies. So, you need to have a savings plan for them. Imagine how much less stress you will feel if you plan ahead and save accordingly, and when the time comes to paint the house, you can just write the check and be done!

2. Save Up $1,000

Most Americans can’t scrape together enough cash to cover an emergency, however, they all know emergencies will happen, because they have in the past. So, it’s key to have an emergency fund. To start, do everything you can to sell, scrape and cut from your budget so you can save $1,000 as quickly as possible that you keep in a separate account from all of your other funds. Truth be told, most emergencies — not all! — will cost you $1,000 or less, so it’s a good benchmark to work toward. With that $1,000 in the bank, you’ll be surprised how much better you sleep at night.

3. Build a Bigger Cash Cushion

Once you’ve got your $1,000 saved up, just keep going! Keep saving up and adding to your emergency fund until you have three months of your household expenses saved up. Once you’ve done that, make it your goal to save six months’ worth of expenses. Just imagine the relief you’ll feel at not having to worry if something happens to your job, or your child needs special medical care, or you get hurt and can’t work for a few months. You’ll be covered without getting yourself into deep debt or having to beg your friends and family for money.

Remember, start today on building your rainy day fund. Aim to save $1,000 first, then keep going. It’s the smartest, safest thing you can do for your family, your finances and your credit score.

Struggling to get your emergency fund started? There are some places where you may be able to cut back. For instance, here are 50 things you should probably just stop spending money on

Image: Geber86

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team