Qapital’s Guide to Building an

Emergency Fund

Why an emergency fund is so important, and how to know when you’ve saved up enough for a healthy safety net

Experts agree: emergency funds are important and everyone should have one in order to be prepared for life’s unexpected and costly surprises. A robust emergency fund can save you from incurring debt if you’re caught off guard by something like an unexpected job loss or major medical event. Without an emergency fund, you’re opening yourself up to significant financial risk – not to mention stress and anxiety, which come with their own adverse risks to your health and wellness. 

Unfortunately, only about one in four Americans say they have enough money saved to cover a $1,000 emergency, which is not nearly enough to cover a significant financial emergency, such as job loss. Here are our tips on how to build an emergency fund, as well as how to know when you’ve saved up enough money to weather the unexpected.

Why is it important to build an emergency fund? 

Despite our best efforts, it’s impossible to predict everything that may come our way in life. Many of these things will be pleasant, but unfortunately, some of them will not. While it may be impossible to avoid unpleasant surprises, it is possible – and wise – to prepare for them. That’s the point of an emergency fund: to anticipate the possibility of an unexpected crisis and prepare accordingly. It’s advisable to build an emergency fund in preparation for any number of reasons, including: 

  • Job loss or similar drastic change in monthly income
  • A medical emergency
  • Major car repairs or replacement
  • Urgent home repairs
  • Assisting ailing family members

Having a robust emergency fund gives you peace of mind. Being laid off, becoming ill, or needing a new car after you’ve totaled yours in an accident are all stressful enough as it is – you don’t want to also worry about how you’re going to navigate the financial aspect of an emergency. Similarly, building an emergency fund can prevent help you avoid the day-to-day anxiety of being just one paycheck away from a missedpotentially missing a rent payment or unpaidnot covering an unexpected medical bill. An emergency fund also gives you some freedom and flexibility for things you may not necessarily want to do, but must do to improve your overall quality of life, like leaving an unhealthy relationship or quitting a job that makes you miserable. 

It’s important to remember that an emergency fund is not the same thing as a rainy day fund. A rainy day fund is really for one-time expenditures, such as paying an activity enrollment fee for your children or covering the cost of replacingif your refrigerator if it breaks down and needs replacing. By contrast, an emergency fund is meant to sustain you over a period of time by covering your living expenses or to keeping you out of debt in the event of a serious financial emergency. In other words, your emergency fund is your safety net. 

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How much money should I have in an emergency fund?

Many people are unsure of how to build an emergency fund because they don’t know’re not sure how much money to save or where to keep it so that it’s accessible in case of an emergency, yet not a temptation. To start, a regular savings account will suffice in most instances when it comes to answering the question of where to keep your emergency fund. Opening a Qapital Goals account can help you build an emergency fund by automating your monthly contributions and finding extra opportunities to save with “IFTTT” recipes.

But how much money constitutes a robust emergency fund? What if you don’t have anything saved for emergencies yet? Here are some tips to help you get started.

  • If you’re starting from zero, aim for $1000: Building an emergency fund can feel overwhelming, especially when you encounter experts who say that a healthy emergency fund should sustain six months’ to a year of living expenses. When there are other factors to consider, like student loan payments or a generally high cost of living, having a year’s salary saved can seem like wishful thinking. If you’re truly starting from zero when it comes to building an emergency fund, then just start small. Make saving one thousand dollars your first goal; having even that much can help you weather a number of minor setbacks and avoid going into debt as you continue to save.
  • Automate your contributions to your emergency fund: Just like saving for other events, like vacation or even retirement, the best way to save money is by making contributions automatic and paying yourself first. That way, you never have to worry about forgetting a contribution and falling behind, and you’ll never risk spending the money before you have a chance to save it. You can automate your savings by either opting for a separate direct deposit from your employer, or by setting up automatic monthly transfers between your bank accounts. Qapital makes it easy to “set it and forget it” with Payday Divvy, a feature that allows you to allocate portions of your monthly income toward saving for an emergency fund. 
  • Continue building your emergency fund and replenishing it as necessary: Once you’ve established a separate Qapital Goals account for your emergency fund, automated your contributions, and saved your first $1,000, keep the momentum going! Continue to bulk up your emergency fund by contributing money from bonuses at work, extra income earned through side hustles, and by trimming your monthly spending until you have at least three months’ worth of income saved. Then, continue to monitor your emergency fund and add to it or replenish it as necessary to account for any changes in your circumstances.

How do I build an emergency fund and also save toward other goals?

In truth, building an emergency fund is a great primer on how to save money in general. By building an emergency fund, you’re learning how to prioritize saving and paying yourself first, how to make saving automatic, and how to more closely track your monthly spending. But is it possible to build an emergency fund and save toward other goals like a vacation, a down payment on a house, or retirement? The short answer is yes – as long as you’re able to balance your priorities. Here are some tips on how to build an emergency fund and grow your savings in other areas, too.

  • If you don’t have an emergency fund, make that your priority: Remember that it’s your emergency fund that will sustain you through a worst case scenario. If you don’t have any money set aside for emergencies, make that your very first saving priority, before you attempt to save for anything else. Get at least $1,000 into a separate savings account, and then continue to build upon that until you have around three months’ of expenses saved. Then, you can begin to save toward other goals like a vacation, car, or down payment on a home.
  • Don’t neglect saving for retirement: Saving for retirement is just as important as building an emergency fund. Once you have at least $1,000 in savings for an emergency, continue to also contribute to your retirement fund and take advantage of any employer contributions that may be available to you. Though retirement may seem like a faraway time, (especially for those who are just beginning their careers), the key to living well in retirement is saving early and saving regularly. So while you should press pause on other savings plans while you are building your emergency fund, your retirement fund is the exception – don’t neglect it!
  • Keep your debts low: It’s hard to save money while also attempting to pay down debt – in fact, it’s advisable that you not attempt to save at all if you have debt that needs to be paid, especially credit card debt. The exceptions to this are building an emergency fund and saving for retirement – even if you have debt to pay off, you should still contribute at least a portion of your income to your emergency and retirement funds. However, other savings goals should be put off until your debts are paid or at least reduced to the point that they can be imminently paid off. Because debt can have a significantly negative impact on your overall financial wellness, it’s important to pay off as much as you can as quickly as possible. That said, it’s also important not to underestimate the importance of building an emergency fund – not having one might force you to resort to using credit cards when you’re faced with an emergency or unexpected expenses, which could spell disaster if you incur more debt than you can pay off in a reasonable amount of time.

Knowing how to build an emergency fund is essential to ensuring your well-being in the event of a crisis. While it’s never pleasant to imagine potentially scary “what-if” scenarios, being as financially prepared as possible for whatever might come your way can alleviate a lot of the stress and anxiety that comes with navigating life’s unexpected moments. In the face of a true emergency, you’ll be glad you took the time to allocate your hard-earned cash toward developing a healthy safety net.

Emergency fund - FAQ

How do I start to build an emergency fund

The best way to build an emergency fund is to create a realistic plan of action. Take the time to closely examine your budget and identify your Spending Sweet Spot. Are there areas where you could reduce spending to save instead, or where you could stop spending money entirely? Automatic subscriptions are a big culprit when it comes to overspending. Once you identify areas of improvement, set a savings goal and automate your contributions with Payday Divvy. While it may not be realistic for you to immediately begin saving 20% of your monthly income, start with 5% or 10% and continue to increase your saving from there, until you reach your target goal. 

How much money should I have in an emergency fund?

Most experts recommend having at least three to six months’ worth of living expenses saved in an emergency fund, and some recommend even more than that. Since the point of an emergency fund is to sustain you over time without needing to take on any extra debt, ideally you’d want to have a considerable sum of money saved. Job loss, serious illness, or any other variety of unexpected changes in income stream can happen at any time without warning, so the more you have saved in your emergency fund, the better equipped you’ll be to weather a potentially long crisis.

Is it possible to use my retirement savings as an emergency fund?

Technically, it’s possible to cash out your retirement savings and use it as an emergency fund, but it’s absolutely not advisable to do so. Because retirement savings depend so heavily on compound interest for growth, withdrawing early inevitably means that you will lose money – and it’s money that you won’t ever be able to get back, since you’ve lost the most valuable asset you have when saving for retirement: time. So while you technically can cash out an IRA or take a loan on your 401K in the event of an emergency, it’s better in the long run not to. Take the time to plan ahead and build a separate emergency fund so you can leave your retirement savings alone.

What if I don’t have an emergency fund?

If you don’t have an emergency fund, you’re leaving yourself open to a whole host of other financial problems. Without a safety net, you may be forced to rely on credit cards and loans to help you through a financial emergency, which could spell disaster once the bills start rolling in. The best thing you can do is plan ahead and save for a potential emergency. If you don’t have anything currently saved in an emergency fund, start now with some baby steps. Even saving just $1,000 can help keep you on your feet in the event of a crisis.


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Past performance is no guarantee of future results. Any historical returns, expected returns or probability projections are hypothetical in nature and may not reflect actual future performance. This content does not constitute a complete description of Qapital Invest’s investment advisory services. Brokerage services will be provided to Qapital Invest clients by Apex Clearing Corporation, an SEC-registered broker-dealer and member FINRA/SIPC.