Financial Zen
Financial Zen

Increase Financial Zen by Increasing Emergency Fund

By Martha Brown Menard , PhD, LMT

Increase Financial Zen by Increasing Emergency Fund

By Martha Brown Menard , PhD, LMT

The recent government shutdown is a reminder of why everyone needs to have an emergency fund. The news featured multiple stories of how people who thought they had steady and secure jobs but were living paycheck to paycheck struggled to pay basic expenses. It’s an extreme example of how unexpected misfortune can create financial chaos in anyone’s life. And it’s a great reminder that being self-employed has its advantages.

Generating an income is necessary to meet your day-to-day expenses, but having an emergency fund is an asset—and it’s critically important. Emergency funds are a form of wealth that can help you navigate a financial setback, like an unexpected bill or the loss of a job.

Unfortunately, many people don’t have one.

In 2018, GOBankingRates conducted a national survey that asked whether people had enough savings to cover three common types of financial emergencies: a car repair, a medical emergency, or six months’ worth of living expenses if they lost their job. More than half of respondents answered no:

●    55 percent couldn’t cover six months of living expenses

●    54 percent couldn’t handle a medical emergency

●    42 percent would have to borrow money or sell something to pay for an unexpected car repair.

In fact, about half of respondents had less than $1,000 in savings.

Plan for the worst-case scenario

Financial emergencies come in all shapes and sizes. The most common reason people need to tap their emergency fund is an unexpected job loss. This is why most experts, as a rule of thumb, recommend having three to six  months’ worth of expenses in a separate savings account (hint: online banks usually offer the highest interest rates) so if you or your spouse lose your job, you have sufficient time to find a new one—which may take longer than you might like. If you plan for the worst-case scenario, then you’ll also be covered for more minor unplanned expenses.

Just how much you need to save also depends on your individual circumstances. If you’re single, you may want to have six months of expenses, while someone who is married and whose spouse has a stable job may choose to have only three, especially if they are working to pay down student loan or credit card debt too. People with a variable income, like many massage therapists, may want to have even more saved as a cushion for those slow weeks or months in between paychecks, and to cover personal days off.

Why using a credit card can hurt you

People sometimes think that if an emergency happens, they’ll just use a credit card to handle it. But it’s usually a bad idea. Why? In a nutshell, the interest rate. Currently, most credit card interest rates start at about 17 percent and can range up to 25-29 percent for people with low credit scores or if you get hit by late payment or penalty fees, and can add a substantial amount to your total payment. Instead of taking on high-interest debt that can be difficult to pay down, see if you can negotiate a payment plan instead—for example, many hospitals and medical providers will work out a payment plan with you, with zero percent  interest. Or, see if your bank is willing to make a low-interest personal loan.

How to get started

If you haven’t started an emergency fund yet, it’s never too late. The most important thing is taking that first step. Open a savings account (again, online banks pay the most interest). Just begin saving something, even if it’s only a small amount. Having even 25 dollars or 50 dollars transferred once a month from your checking account to savings makes it automatic, so you won’t have to think about it.

Take small steps toward your larger goal. Make your initial goal 500 dollars, then aim for 1000 dollars, then one month’s worth of expenses. Keep going until you have enough saved to feel comfortable. If you get a windfall or even a large tax refund, use a chunk of it to jumpstart your emergency fund. Seeing that bigger number in your account can motivate you to maintain or even increase your savings rate. If you get a raise, plan to increase your savings proportionately.

Other ways to increase your emergency fund

  1. Save by eating at home more often, and limiting how often you get takeout food. Buy a good travel cup and make coffee at home to take with you.
  2. Round up your expenses, and deposit the difference into your emergency fund account every month. Or put your loose change in a jar and when it gets full, deposit it.
  3. There’s usually a limit on how much you can cut your expenses, but there’s no limit on how much you can earn. Babysit, offer pet care services to your neighbors, give lessons, or get a part-time job for a few months to build up your emergency fund.
  4. If you get an unexpected windfall, put some of it in your emergency fund.

Life happens. You can bank on it—things break and need replacing, pets need a trip to the vet all of a sudden, jobs abruptly come to an end. So, expect the unexpected and start building an emergency fund to handle the inevitable curveballs life is going to throw at you. An emergency fund helps make it easier to deal when things go wrong, without jeopardizing your financial stability. It’s also one of the best ways to start getting out and staying out of debt—having an emergency fund means that you don’t need to take on additional debt to cope with an unexpected car repair, for example.

Having an emergency fund reduces financial stress both now and in the future. Knowing that you’re prepared to handle an unexpected expense, should it arise, equals psychological peace of mind—and that’s priceless.

Dr. Martha Menard is a research scientist and financial wellness coach. She is a member of the Association for Financial Counseling and Planning Education. Got a personal finance question? Contact her at, or schedule a complimentary coaching consult at Your question may be featured in an upcoming article.