Emergency Fund



Simply by the name, you can tell that this fund (savings) will be set for emergencies. And you can wonder how setting savings for emergencies is a top step for financial stability. Well, nothing is certain in this life; you can face unexpected unemployment, health emergencies, travel emergencies, car repairs, and many more. That’s why having this fund from where you can easily cover these expenses is so important instead of using your credit card or taking a loan.


The rule of thumb says you should save for 3-6 months of expenses. Meaning if you spend $3,000 per month, then you multiply that for 3 or 6 (your choice), and that is the amount of money you should set aside.


You may hear people saying, “You should not have more than 3 months of savings because you’re better off investing,” but I’ll ALWAYS recommend doing what feels right to you. IT’S YOUR MONEY, YOUR LIFE, YOUR PEACE OF MIND. Personally, having an emergency fund with 6 months of expenses gives me the peace of mind I need.


NOW, do not believe that you need to have that amount of money as a lump sum right away; in other words, you don’t need to set aside the total amount right away; you can make monthly contributions until you get to the full amount. In that way, it will be less drastic. Or you can start even with only $500 – $1000 (let’s call it a starter emergency fund). The point is to start building it as soon as possible.


I made regular contributions to get to that goal, and what helped me the most was setting automatic deposits. I saw a HUGE difference when I had these automatic transfers. Since then, I use the automatization for everything: Emergency funds, goals, and investing. It’s a life-changing tool; give it a try! You won’t regret it.


AND MOST IMPORTANTLY, don’t feel bad if you need to withdraw money from the emergency fund as soon as you deposit it; EMERGENCIES HAPPEN, and that fund is FOR IT. For instance: I remember a time that right after the day I got my monthly transfer, I withdrew that money because I moved and unexpected expenses came in. But I was so relieved that I didn’t need to worry about having that expense on my credit card.


Just focus on replacing that money you withdraw and truly stick to use the fund ONLY for emergencies/unexpected events.


I’ve heard some financial advisors suggesting paying any debt before saving for an emergency fund, but HOW can you avoid more debt if you don’t have the funds to cover unexpected expenses? – It is truly absurd to me. You’ll continue getting more and more debt instead of getting free from it.


Your mind will be at peace knowing you can cover the cost of unexpected things that comes into your life.


Where you can build it?

You can build this fund in a checking, savings, or money market account/funds. I like the savings account more because you have some withdrawal limits; usually, six transactions are permitted per month, so it helps you avoid pulling money for things that are not emergencies. These accounts also offer interest rates that help you to grow your money. And I know these interest rates are low, but HEY! It is free money!! My mom always says, “Better something than nothing,” and I totally agree. Money market funds or money market accounts are another option; I don’t like it or suggest it for an emergency fund unless you want more than 6 months of expenses on it – WHY not? Because of liquidity which means quick-and-easy access to your money; the Money market accounts and funds have more restrictions and risks. However, I think that having one for goals is a good option. If you don’t know about money market accounts or money market funds, don’t worry, you will learn about them in this blog. 


The following are saving accounts that I’ve heard are good (when I say “good,” I’m referring to higher interest rates and easy access to your deposits):


  1. Ally Bank
  2. Citi Bank
  3. Capital One
  4. Marcus by Goldman Sachs

Research and choose the more convenient for you. The main thing is making sure you look at THE FEES, Yield (return), and that the bank is insured by the FDIC. And just to let you know, I DON’T LIKE WELLS FARGO; that will be my only red flag because when I was at school, this bank always came out with many lawsuits and scandals, so for me, it is a NO NO.