Do You Need An Emergency Fund? A Guide To The Best Advice

emergency fundMost personal finance experts recommend having an emergency fund. Yet, 47% of Americans don’t have enough to cover a $400 emergency. This is a problem.

The advice on emergency funds is diverse. Everyone’s in a different place, financially and otherwise, so what works for one person won’t work for another. Any way you slice it, it’s important to have a plan for when life throws those unexpected curve balls (and it will).

So, should you have an emergency fund? If so, how much should you have in it? And where should you keep it?

Rather than reinvent the wheel and write my own article on this important topic, I put together a comprehensive resource guide chock full of knowledge from the personal finance community.

You’re sure to find one article (or two or ten) that will fit your circumstances and help you decide what type of emergency plan is best for you.

All About Emergency Funds

Why You Need an Emergency Fund
Laura from Savvy Family Finance gives us a great example of why you need an emergency fund, where you should keep the money and how much to have.

Where Should I Hold My Emergency Fund
Slow Dad from Cantankerous.Life answers the common question of where to keep the emergency fund and establishes what a “genuine” emergency really is.

Setting Up an Emergency Fund and Cash Reserve
Kathryn from Making Your Money Matter provides a thorough, comprehensive guide to starting an emergency fund, complete with examples and steps in “class” format.

Developing a Financial Emergency Plan
Apathy Ends encourages us to have a specific plan in place for financial emergencies. An emergency fund isn’t the only thing to think about – cutting expenses, stopping retirement savings, and selling your car are a few options.

The Time Our Emergency Fund – and Plan – Saved the Day
Think it can’t happen to you? In a guest post on My Family On A Budget, Liz shares her personal story about a serious family medical emergency. Having an emergency fund was crucial for getting her family through this stressful life event.

How Your Emergency Plan Can Save You
Not only did the emergency fund help Liz’s family through this tough time, but having an emergency plan was a necessity. On her site, Chief Mom Officer, she recommends going beyond the emergency fund to develop a plan for the unexpected.

The Importance of an Emergency Fund
Josh from Money Buffalo covers all the hows, whats and whys of an emergency fund. Do you wonder what you shouldn’t use the emergency fund for? He shows us some “Improper Uses of an Emergency Fund”.

Baby Step 3: Fully Funded Emergency Fund Update
Don’t miss the story of how Steve from My Family On A Budget was able to build his family’s emergency fund, even with a few bumps in the road.

The All-Important Emergency Savings
Jim from Route to Retire shares exactly how much they keep in an emergency fund and where they keep it.

Why You Need an Emergency Fund
Mustard Seed Money likes to think of the emergency fund as “cash as insurance against unexpected events”.

Emergency Fund: You’ve Got to Have One
Francesca of From Pennies to Pounds believes an emergency fund is a necessity. She suggests a more meaningful, exciting name to help motivate you, such as the “**** hits the fan fund’ or ‘don’t need to ask the in laws for help fund’!”

The Importance of an Emergency Fund
Brian from Debt Discipline says an emergency fund changed everything for his family. It got them through significant life events without adding financial stress to already stressful situations.

Everything You Need to Know About Emergency Funds
Michelle from Making Sense of Cents answers all the burning questions about emergency funds – for those times when “you need money fast”.

Is Your Emergency Fund Big Enough?
Gary from Super Saving Tips helps answer one of the most difficult questions: Exactly how much should you have in an emergency fund? Check out his tips on how to build savings too.

The Importance of an Emergency Fund in College
Do college students need an emergency fund? Stephonee from Poorer Than You thinks so – and she shares why.

Why Having Savings Can (and Will) Change Your Life
Having a nest egg can be completely life changing. Ricard from Escaping to Freedom tells us how it gave him the freedom to change his life in great ways.

13 Easy Ways to Save
If you think you can’t possibly save for an emergency fund, here are some suggestions that may change your mind. This one’s featured here on Centsibly Rich.

How to Quickly Build an Emergency Fund
Need an emergency fund and need it fast? Head on over to Young Adult Money to check out these tips on how to build it quickly.

Be Proud of Your Emergency Fund
Be proud of your emergency fund, no matter how much, or how little, you have saved! As J$ from Budgets Are Sexy says, “It may not be as much as you’d like, but you’re on it and you’re getting closer”.

5 Financial Moves for Millennials to Make Before 30
Here’s some great money advice for all of the 20 somethings. Head on over to The Frugal Farmer and do these 5 things. Your future self will thank you!

The Evolution of the Emergency Fund//From Kiddie Pool to Olympic Swimmer
Mrs. Need2Save explores how your emergency fund needs change, depending on life and financial circumstances. What phase are you in? Kiddie pool, doggie paddle, proficient swimmer or Olympian?

Rethinking Emergency Funds
Miss Bonnie MD shares guidelines and questions surrounding emergency funds. She also puts the personal in personal finance and shares her strategy.

Why Do You Need An Emergency Fund?
Katasha Kay from Broke Girl Rehab put together a great video on why you need an emergency fund and how to build it, complete with real life examples.

Back to Basics: Emergency Fund [$$$]
Claudia and Garrett from Two Cup House have crushed their debt, but have struggled to find the right emergency fund strategy. Check out their new system and how it’s working for them. Maybe it could work for you too.

Be (Financially) Prepared
Ty from Get Rich Quickish wants you to “get your crap together” and prepare for a financial emergency now. Because even if you’ve never had a financial emergency, you probably will.

Why You Need A Beginner Emergency Fund
Alaya at Hope and Cents shares why you need an emergency fund, how to build it quickly, and where to keep it (check out her unique strategy for where to keep it if you don’t have the discipline to not spend it).

Sinking Fund
Single Dad Living goes beyond the standard emergency fund to discuss why you should have a sinking fund and how to build one.

The Ultimate Emergency Fund
Akash Sky discusses the which, what and why of emergency funds, and takes a unique approach on where to keep it – an I-bond. What’s an I-bond, you say? Click on over for a great info-graphic that clearly explains it all.

Alternatives to the Standard Emergency Fund

Top 10 Reasons For Having an Emergency Fund – Debunked (Part 1)
Top 10 Reasons For Having an Emergency Fund – Debunked (Part 2)
A thought provoking 2 part series from Early Retirement Now debunks the theory that an emergency fund should be housed in a “safe” account, as the loss in investment returns is significant.

Is An Emergency Fund Necessary?
Big Law Investor makes the case that, for high income earners, traditional emergency fund advice doesn’t fit. He shares his recommendations, as well as where he keeps his emergency funds and why.

The Side Hustle Safety Net: Protect Yourself Against Job Loss When You Don’t Yet Have an Emergency Fund
If you don’t have enough in the emergency fund, a side hustle can be a valuable backup. When Lindsay from Notorious Debt lost her job, she didn’t have a fully funded e fund, so she stepped up her freelancing side hustle to successfully replace the lost income.

Investing Your Emergency Fund
Should you invest your emergency fund? Maybe! Grant from Millennial Money uses his own example to show how much growth he missed out on by not investing his emergency fund.

Rethinking Emergency Funds
Check out this related Millennial Money podcast, where Grant and Matt from Distilled Dollar discuss the factors to consider when deciding whether to have an emergency fund or invest (or both).

Emergency Funding Like a Pro: Ditching the $800,000 Emergency Fund
The Money Wizard eloquently describes the high cost of holding a large emergency fund and suggests alternatives to traditional savings.

Why HELOCs are Awesome
Jon from Be Net Worthy gives us the ins and outs of HELOCs and why they make a good emergency fund alternative.

Emergency Fund Alternatives
The Green Swan doesn’t follow conventional advice on emergency funds. In this post, he discusses the opportunity cost to keeping the money in a regular savings/checking account and details 4 alternatives in lieu of standard advice.

What do I do with my emergency fund? I used to have the standard 6 months cash in a savings account, but recently set up a HELOC as a backup plan. We have the flexibility to invest more money with the HELOC in place (right now, we’re planning to invest it in real estate).

What did you learn? Do you have an emergency fund? If so, where do you keep it?


Fellow bloggers – if you have a great emergency fund/emergency plan post and want it included, please let me know and I’ll be happy to add it!

60 thoughts on “Do You Need An Emergency Fund? A Guide To The Best Advice

  1. Wow, what a great reference you’ve created here! Lots of good resources.

    We recently reduced our emergency fund by about half when we paid off debt which significantly lowered our living expenses. So we were able to use some of the fund to pay off the last of the debt, while maintaining 6 months expenses in savings based on our new expenses.

    1. Thanks, Kalie! Wow! It’s great you were able to use reduce the emergency fund to pay off the debt…and still have enough left to cover 6 months. Congrats! 🙂

  2. Love, love, love this! Emergency funds are so necessary for financial health and peace of mind! We are in the process of bulking up to 6 months worth of an emergency fund, and I can’t tell you how good it feels.

  3. Great list! I completely advocate for an emergency fund. Mine is at 20k and I keep it in a “high interest (yeah I get that no savings account has a very high interest rate anymore) savings account” that is away from my main checking account, but I could access in about 2 days.

    1. What we do have in an emergency fund is also in an online savings account – earning 1% – and it takes about 3 days to get it. Inconvenience is a good thing here!

  4. Nice round up of a variety of thoughts, Amanda. It brought back a lot of memories of reading the posts you cited and pondering my own thoughts on the necessity of an emergency fund.

    I’m still in the camp that an emergency fund is necessary for almost everyone. Removing an income source from the average family today would be devastating to their finances and psyche. A properly funded emergency fund would certainly soften the blow and help the family stay on their feet.

    1. Thank you! Everyone has a different risk tolerance and everyone approaches the emergency fund differently, but it is necessary to have a backup plan – emergencies will happen. We rely on one income to pay the bills, so we keep a few months liquid for our peace of mind.

  5. Thanks for including me Amanda!

    Ton of great information above – safeguard your family! The only wrong answer is no fund and no plan

  6. Lots of goodness here! I do have an emergency fund and I keep it an online bank that is separate from my checking. It takes at least 2-3 days for me to transfer my money so I can’t ever impulsively spend it. I also keep a couple thousand extra in my checking account as a buffer just in case. I’d rather be safe than sorry!

    1. Thanks, Alexa. We do the same thing. The little bit of inconvenience is good, in most cases. It’s a great idea to have a checking buffer too – sometimes those bills are unexpectedly high.

  7. Wow, talk about comprehensive! 🙂 You make a great point that what works for one person might not work for another. It’s just important to be prepared for the unexpected and have some kind of plan in place now versus later.

    Nice job on putting this together and thanks for including me in it!

    — Jim

    1. Comprehensive…that it is! Being prepared for the unexpected is the key – because the unexpected will happen, as much as we hope it doesn’t.

      Happy to host and glad to include you, Jim! 🙂

  8. Great collection of articles on an important topic. Nice work, Amanda!

  9. Thank you for including my article about emergency funds for college students!

    On the flip side, I’m reading through Early Retirement Now’s links about not having an emergency fund (the first links in your “Alternatives to the Standard Emergency Fund” section), and there are some pretty compelling arguments there. I don’t think I’ll ever be able to get my husband on board with holding less cash, though! 😉

    1. I loved your post, Stephonee – I don’t think most college students have much of a buffer, beyond maybe a credit card, which isn’t a good backup plan.

      There are some compelling arguments against the traditional emergency fund, that’s for certain. At this point, we’re taking a hybrid approach. We’re still keeping some cash on hand, but just enough to cover a few months.

      1. I love the hybrid approach! Right now, I’m thinking about the fact that we have things like a “new car fund” that are also in cash (savings account). It seems like double cash on top of having a few months of expenses in a cash emergency fund! But my husband would surely say that he feels better having double cash, so I may be stuck here. 😉

  10. Holy Smollies, that is a lot of great links! We are keeping a lot of cash right now, partly due to our comfort levels. And the fact we are working very part time, self employed. And with 3 houses, 5 kids, 4 vehicles, and my poor dental enamel I feel like we carry a lot of risk. =)

    1. It’s a link party! 🙂 It’s all about what works for you – that’s why I love gathering all of these posts together. There’s something for everyone. Having a cash buffer can make it easier to sleep at night!

  11. Great post, Amanda! You have consolidated and put together a great list of posts to highlight the importance of having emergency funds.

    I have been procrastinating HELOC as an emergency fund. This would be the right option for us and would enable our emergency funds stuck in a saving account to work better for us. It is on my list of things to do.

    1. Thanks Michael!

      We set up the HELOC when we refinanced last summer, which kept our costs down since we didn’t have to pay for another appraisal. After we finally got it in place, it feels great to have it to fall back on. I’d definitely recommend it, if you have the opportunity.

  12. I realized quickly after graduating college just how important emergency funds are. Some great resources on this list, and appreciate you including one of our posts!

  13. Great list of resources on Emergency Funds.

    I tend to side with the people who say that Emergency Funds aren’t quite necessary. If an emergency happened, I would put my emergency expenses on a credit card and then withdraw from my taxable accounts to cover it after.

    1. Thanks! Using the credit cards is an option as long as you have a plan for covering the balance before the interest hits – and it sounds like you do!

  14. You are reading my mind! Now that the end of our consumer debt payments are in sight, we are kickstarting our sinking funds preparing to grow our emergency fund from about 2.5k to 3-6 months of income. This list of articles is going to be a resource I visit often in the next few months. Thanks, Amanda!

    1. That’s great, Melanie! I’m glad you will be able to use it! There are so many great posts to choose from.

  15. A great list of e-fund information! After losing a job and being out of work for 8 month my family and I were never so thankful for our emergency fund. You just never know and it always best to be prepared. Thanks for compiling this resource Amanda!

    1. Thanks, Brian! A job loss is the perfect reason to have a solid emergency plan in place. I don’t think it’s a matter of if an emergency will happen, but when. Life happens!

  16. Emergency funds are so important!! I had to learn the hard way. Right now I am working on getting 6 months worth of expenses, but we are looking for a new apartment so there will be an increase in what “6 months” looks like. Also I am trying to figure out where I should keep the fund.

    1. I know you will find the right information here, Sylvia! There are many great suggestions on where to keep the fund and how to build it up. Thanks for stopping by!

  17. I think what’s really interesting is how people are or aren’t willing to spend their emergency funds. We’re thinking hard on that now that we’re gearing up for my maternity leave. It would be really easy to not worry (much) and spend the e-fund for the next year. But I’m not sure that’s really what we want to use it for if that makes sense. Love the round-up idea!

    1. Thanks, Penny! I know you’ll make the decision that’s right for you. It is interesting how everyone has a different strategy and comfort level when it comes to the emergency fund. I have some buffer money and some that I don’t touch at all, unless it’s a real emergency – like job loss or medical bills.

  18. Similar to some others, we dipped into our emergency fund and savings to pay for a portion of our house so we didn’t have to take out as large of a mortgage. We would have done more but didn’t feel comfortable about it with having a small family to care for & somewhat shaky employment.

    Thanks for including me in your post Amanda.

    1. That sounds like a balanced approach to me, Josh! Thanks for being part of the round up!

  19. Thanks for including us Amanda!

    After writing our article, we decided that we probably had a bit too much cash in our dedicated emergency fund. We have other short-term savings to cover things like car repairs, home repairs, etc. So we decided to move some of our emergency savings into bond funds. Hopefully we will earn more than the 0.75% we are earning on Capital One.

  20. Thank you for putting together this comprehensive list. It’s going to be fun to work my way through to read everybody’s advice 🙂

  21. Great summary and great list of links and many thanks for the shout-out! Glad to see a whole spectrum of opinions represented here. For us, it was always most efficient to simply invest the whole loot in equities. It’s hard to not deploy all the available cash every time there’s a market dip. 🙂

    1. Thanks for the thought-provoking content! You actually inspired me to change my approach to emergency funds. I still keep some cash, but not as much as before. 🙂

    2. Thanks so much for your articles, ERN! They made me reconsider my e-funds, as well. Not totally ready to dump cash altogether, but my husband and I are definitely going to move some of that into equities. All because of you! 😀

  22. I just started working on my emergency fund, but I’m happy I’m starting now rather than later! I read a statistic about a large percentage of people not having $500 in their savings in case of some kind of medical insurance. Most people have to put the bill on their credit card.

    1. Just getting started is the hardest part! It’s great you are building your fund, Alexis. Using credit cards as an emergency back up plan is never a good idea if you can’t pay off the balance before that interest hits. Even a small cash buffer can prevent further debt.

  23. Great list, Amanda. That stat about people not being able to cover an emergency expense of a couple hundred dollars is really sad and scary. But even our family never really had a solid cash emergency fund of a few thousand dollars until the last year or so. We have non-liquid investments, but a couple grand in cash – it is amazing how we really never did… when we had debt. Coincidence??

    1. Thanks, Linda! Isn’t it interesting that you didn’t have a cash cushion while you had debt. I do think once the debt is paid off, the resulting feeling of security and lowered stress can lead to more positive financial moves. Plus, in order to pay off the debt, you have to look at and cut spending, so this probably plays a role too.

  24. I think if people can make steps towards building an emergency fund and getting closer (if only a bit) to surviving on one income, it is a step ahead of most of the population. It’s easy to think there’s no point because my fund won’t be big enough/ I won’t be able to survive on a low enough income, but sometimes it’s really about restricting the amount of debt you have to get into when the sh*t hits the fan (which it inevitably will at some point!)

    1. That’s the thing…when life is going by pretty much status quo and everything seems just fine, it’s easy to think the savings is unnecessary. But, when life happens in big ways – when that shit does hit the fan – that’s when the emergency backup plan/fund becomes a lifesaver.

  25. This is a great list! The most dramatic example of an emergency fund in action that I’ve read about is Brian’s from Debt Discipline. After paying off $109,000 in cc debt and putting aside a big emergency fund, he lost his job, and it took about a year for him to get established in a new job. His wife’s lower income and his emergency fund saw that family of 5 through a time that would financially cripple most people.
    I wasn’t excited about saving an emergency fund when there was still a mortgage to pay off, but I’m so glad we have one. We’ve seen that the unexpected can happen – and there’s no saying it won’t happen again. We’ll be ready for it if there’s a next time.

    1. Thanks, Ruth! I agree, Brian’s story is impactful. It just goes to show how paying off the debt and having an emergency fund can get you through the tough times without causing a total life upheaval. The unexpected can and does happen…and not just to other people.

  26. Very comprehensive list of EF info. It’s interesting to see people’s different views on this topic. I’m with Green Swan on this one. When I was younger, I had it in a “high-yield” savings account but now that my net worth has grown, I don’t really have a dedicated fund. All my money is effectively an emergency fund in case of a true emergency. If I couldn’t access my money quickly, I can also use a credit card which would give me enough time to withdraw from accounts that are less liquid.

    1. Thanks, Andrew! There are so many differing views on the topic. I had no idea until I read all the posts and put the round-up together. There really is something for everyone. Thanks for sharing your strategy. 🙂

  27. Great roundup, Amanda! Although I’ve read a number of these gems I still have some catching up to do. I’m a big believer in a large emergency fund and also in being over prepared. I feel the same about insurance. And while I like having my emergency fund in cash, I also keep in mind that keeping a Roth IRA flush is a great back up plan.

    1. Thank you, Mrs. Groovy! 🙂 Considering you can withdraw the contributions from the Roth without tax or penalty, you’re right, it’s a great back up plan.

  28. Great resource and I just shared it in my FB group!

    Anyhow, it’s always interesting to see everyone’s perspectives on this subject – my approach to my own emergency fund has changed with time, depending on my circumstances and how much risk I think is reasonable. i.e. lowest risk approach is to flat out have cash in a savings account… higher risk approach is to say screw it, I have a large line of credit that I can tap into if needed, I’ll invest my cash in real estate instead and come out ahead over the long run. 🙂

    1. Thank you so much for sharing, Avery! 🙂 I think as our circumstances change, so do the emergency fund needs. I fall somewhere in the middle here. I do like to have some cash on hand, but am willing to float a little on my HELOC if I need to.

  29. Hi Amanda,

    Love the posts. I admire the help and advice you are providing. Keep up the great work.


    1. Thanks so much Chad! And thanks for stopping by. 🙂

  30. Thanks for the share Amanda. Keep up the great work!

    1. Happy to share, Slow Dad! 🙂 Thanks!

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