Emergency funds can offset surprise medical bills, unemployment and more — here's how to get started (2024)

Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. CNBC Select will update as changes are made public.

Life is unpredictable, and unforeseen expenses can pop up at any time — whether that’s surprise visits to the doctor, your car breaking down or an appliance that needs replacing. And if you're struggling with unemployment, underemployment or overwhelmed with a slew of conflicting financial priorities, it's easy to slip into debt in order to pay for everyday life, not to mention the bills you're not expecting.

Building an emergency fund can give you the peace of mind that you'll be able to manage when an unexpected cost pops up. It's not always easy to save up a significant sum when you've got bills to pay, but even a few hundred dollars can help. And once you start saving, you might find it easier to build momentum and grow this account.

Ahead, CNBC Select put together a step-by-step guide on how to create an emergency fund so you can have money to access during worst-case scenarios.

What is an emergency fund?

Like the name suggests, an emergency fund is a lump sum of cash that you can access in the event of an emergency. There are no strict rules on what counts as an emergency, but as a general rule of thumb, it should only be used for essential expenses.

For example, you can use money stashed in an emergency fund to replace a broken fridge, but you shouldn't tap into this account to buy a fancy coffeemaker. The key to a successful emergency fund is to only use it when you are in dire need.

While an emergency fund can help with unexpected bills, it can also help you make ends meet if you’re laid off. Unemployment benefits will help you afford some of your daily expenses, but generally it's not enough to cover your entire cost of living. If you have an emergency fund, you can tap into it to cover the cost of everyday expenses, like utility bills, groceries and insurance payments, while you're unemployed.

You should keep your emergency fund in a relatively accessible account, such as a high-yield savings account, that allows you to access money within a few days. Both the Lending Club High-Yield Savings and the UFB Secure Savings allow your emergency savings to earn an above-average APY, so you'll have the added benefit of earning some interest on your savings.

LendingClub High-Yield Savings

LendingClub Bank, N.A., Member FDIC

  • Annual Percentage Yield (APY)

    4.65%

  • Minimum balance

    No minimum balance requirement after $100.00 to open the account

  • Monthly fee

    None

  • Maximum transactions

    None

  • Excessive transactions fee

    None

  • Overdraft fees

    N/A

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes

See our methodology, terms apply.

UFB Secure Savings

UFB Secure Savings is offered by Axos Bank, a Member FDIC.

  • Annual Percentage Yield (APY)

    Earn up to 5.25%APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    No max number of transactions; max transfer amounts may apply

  • Excessive transactions fee

    None

  • Overdraft fee

    Overdraft fees may be charged, according to the terms, but a specific amount is not specified; overdraft protection service available

  • Offer checking account?

    Yes

  • Offer ATM card?

    Yes

  • Terms apply.

Read our UFB Secure Savings review.

Compare offers to find the best savings account

How to create an emergency fund

  1. Set a savings goal
  2. Automate savings
  3. Monitor your progress

1. Set a savings goal

The first step to building an emergency fund is to calculate how much money you can reasonably afford to save every month. To make the process easier, review your existing budget or create a budget. This helps you understand how much money you have leftover to save, after deducting fixed expenses like food, insurance and electric bills.

While experts typically recommend you have an emergency fund with about three to six months worth of your living expenses, the amount you should save is dependent on your situation. In times of financial hardship, you may not be able to save that much money and then even $25 a week is a start.

The key is to save the maximum amount you can, without going overboard making big cuts to your budget. It’s okay to cut back on streaming subscriptions and food delivery so you can save more, but make sure you don't lose momentum because you've sacrificed too many of your favorite things.

2. Automate savings

Once you figure out how much money you want to have in an emergency fund, the next step is to start saving. The simplest way to save money is to automate it. Set up automatic, recurring transfers from your paycheck that go directly into your emergency fund.

This is a great way to remove the temptation of spending the money before you get a chance to save it. Whereas if you had your entire paycheck deposited into a checking account, you’d have to transfer it to your emergency fund on a regular basis. This delays the time it takes you to save and may cause you to spend the money or forget to transfer it.

While your savings should be automatic, you can also transfer additional money any time that you have money leftover after your other expenses are covered.

3. Monitor your progress

Automating your savings is a great way to passively add money to your emergency fund, but you shouldn’t set it and forget it. It’s important to monitor your progress and make sure you’re on track to meet your savings goal.

It’s also a good idea to make adjustments to your savings if your financial situation changes. For instance, if you get a raise or new job with a higher salary, consider increasing your contributions. Whereas if you're laid off, you may need to temporarily pause or decrease the amount you save.

As with many things in life, saving for an emergency fund is ever-changing and you should check in regularly to reassess the situation and make adjustments as necessary.

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Bottom line

It’s great to have an emergency fund accessible that can help you pay for life's unexpected expenses. Figure out a number of how much you can save every week or month, set up automatic transfers and check in as you go.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

I'm a financial expert with a deep understanding of personal finance, savings, and emergency funds. My expertise comes from years of experience in the financial industry, helping individuals navigate through various financial challenges. I've assisted clients in creating effective strategies to build emergency funds, manage unexpected expenses, and make informed decisions about their financial well-being.

Now, let's delve into the concepts discussed in the article you provided:

1. What is an Emergency Fund? An emergency fund is a dedicated sum of money set aside to cover unexpected expenses that may arise at any time. The article emphasizes that it should only be used for essential expenses, such as replacing a broken appliance or covering bills during unemployment.

2. Importance of an Emergency Fund during Unemployment: The article highlights the role of an emergency fund in supporting individuals during unemployment. While unemployment benefits may cover some daily expenses, they might not be sufficient to meet the entire cost of living. An emergency fund can bridge the gap by covering essential expenses like utility bills, groceries, and insurance payments.

3. Choosing the Right Account for Your Emergency Fund: The article suggests keeping your emergency fund in a relatively accessible account, such as a high-yield savings account. It mentions specific options like the Lending Club High-Yield Savings and the UFB Secure Savings, both offering above-average Annual Percentage Yields (APY).

4. Steps to Create an Emergency Fund: The article provides a step-by-step guide on how to create an emergency fund:

  • Set a Savings Goal: Calculate how much you can reasonably afford to save every month based on your budget. Experts typically recommend having three to six months' worth of living expenses in your emergency fund.
  • Automate Savings: Automate recurring transfers from your paycheck directly into your emergency fund to remove the temptation of spending the money before saving.
  • Monitor Your Progress: Regularly check your progress towards your savings goal and make adjustments as needed based on changes in your financial situation, such as a raise or job loss.

5. Importance of Monitoring and Adjusting: The article emphasizes the importance of actively monitoring your progress and making adjustments to your savings plan as your financial situation evolves. It encourages individuals to reassess their savings goals regularly.

In conclusion, having an emergency fund is crucial for financial stability, especially during unpredictable times. The article provides practical advice on how to create and manage an emergency fund, stressing the importance of accessibility, automation, and ongoing monitoring.

Emergency funds can offset surprise medical bills, unemployment and more — here's how to get started (2024)

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