4 Strategies You Can Use to Build an Emergency Fund

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This is post is contributed by Katie Scarlett Needs Money friend Sherry Jane.

The year 2020, in its seeming entirety, is a stern reminder that we all need to set aside an emergency fund. Having money may not solve all of life’s uncertainties, but it can help tide one over during a difficult financial situation.


Emergency savings is different from ‘regular’ savings, and these funds should ideally be stored in separate bank accounts. The money held in a ‘regular’ savings account may be used for a much-awaited trip or to buy an item to commemorate a professional milestone; emergency funds, on the other hand, should only be used in emergencies, such as during times of personal crises or natural disasters.


Your emergency fund can afford you peace of mind and practical options should anyone in the family fall ill or get injured or if you’ve lost your source of income. It should also allow you to stay independent for longer and keep you on track to meet your goals even if you encounter financial bumps along the way.

How much do you need to save?

Finding out where you stand financially can help you figure out your goal amount. Now, there are no rules when it comes to determining how much your emergency fund should be. However, most people agree that emergency savings should last at least three (3) months. You can use your current monthly income or your monthly expenses as a base and then multiply it by 3, 6, or 12, depending on how many months you want your emergency funds to sustain your essential needs. The longer it can keep you financially independent, the better.

Ways to start your emergency fund

Saving money can be more challenging than it looks. Setting aside a portion of your income is a big challenge if you’re already inundated by bills at the end of every month. It doesn’t mean that the task is impossible, though. Here are a few easy ways that can help you get started:


Keep a small portion of your regular salary. The simplest way to start building your emergency fund is by reserving a percent of your regular earnings. If your income looks like it’s just enough to cover your expenses, then you might need to reevaluate how you spend money. Check if there are expenses that can be converted to savings. Sometimes, this task requires a shift in mindset. Instead of looking for what’s left after everything has been paid off, consider your savings as a higher priority than your expenses. Before spending on anything, pay yourself first in the form of savings, then divide what’s left of your income between the things you need to buy or pay.  


Save anything that’s not a part of your regular income. Another great way to start the ball rolling would be by saving any extra money that comes in. You can set aside your 13th month pay, midyear bonus, tax refunds, rebate checks, or other extra money that don’t make up your regular income for emergency purposes. Because that money is not a part of your monthly budget, you’ll hardly think about the amount again after depositing it into your emergency bank account. No matter how big or small a windfall is, make it a habit to save it then forget about it—unless you need it for an emergency, of course.


Take on side jobs and projects. If you have more time and energy than money to spare, then you can look into getting part-time jobs or one-off projects and use your earnings from these to start your emergency fund. If you’ve always enjoyed the thought of being your own boss, you can also explore the possibility of starting a small business. After you get your capital back, save whatever you earn for emergencies. This strategy enables you to save and indulge in your interest and hobbies, plus it gives you possible alternative sources of money. If you stay consistent in depositing your extra income, you’ll slowly work your way to achieving your goal amount.  


Grow your money. If you think it’s going to take a while before you have to use your savings, why not take the opportunity to let your money grow and work for you? You can deposit money you don’t need in a high-yield savings account, then simply wait for it to complete its term. Make sure, however, that you still have a bit of money set aside to cover any emergencies that you might encounter while a good portion of your funds is in a time deposit.



Your emergency funds should be stored in a highly liquid account, so you can easily access the money in times of need. Alternatively, you can opt to put the amount you saved in money market funds, where your money will periodically earn interest. Do remember, though, that it may take you a little longer to get your money back if you choose the latter option.

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Sherry Jane

This article is contributed by Sherry Jane, a personal finance enthusiast.

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Katie Scarlett

is a personal finance advocate working towards achieving financial independence and early retirement (FIRE).

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