How To Build an Emergency Fund (on Any Budget) 

I have a special nickname for my emergency fund.

I call it my “peach pit.” 

A few years ago, I decided to snack on a ripe peach while walking home from the grocery store. 

On the last bite, I felt a painful crunch. I spit into my hand and saw a small fragment of peach pit—and a small fragment of my own tooth. 

I quickly made an appointment for the dentist, but because I didn’t have great insurance, it was going to cost me $300. 

For the first time ever, I dipped into my emergency fund. 

At that time in my career, $300 was more than half of the entire fund. But it was worth it—my dentist fixed my broken tooth the very next day. Without that extra cash, I would have been walking around in pain for a few weeks until my next paycheck came through. 

An emergency fund is one of those things that you don’t really appreciate until you need it. 

Hopefully, you won’t need it any time soon. But just in case, it’s smart to start building an emergency fund, no matter where you are on your career (and income) journey. 

Here’s a deeper look at what an emergency fund is and how you can make a peach pit of your own. 

What is an emergency fund? (And what it’s not)

An emergency fund is money you set aside for life’s surprises. Think of it as your financial safety net—not money for a new laptop or that festival ticket you really want, but cash you can access quickly when things go sideways.

The key word here is emergency—genuine problems that need immediate attention: your car breaks down on the way to work, your tooth decides to break in half (speaking from experience), or your company announces sudden layoffs. These are the moments when having some extra money saved up can mean the difference between a stressful week and a financial disaster.

Your emergency fund isn’t the same as your other savings. You won’t use your emergency fund to pay for a down payment or a future vacation—those need their own savings strategies (more on that later). It is also not money you will put toward retirement—that money gets set aside in a different kind of account altogether (even more on that, later). 

Think of your emergency fund like a financial first aid kit—you hope you won’t need it, but you’ll be really glad it’s there when you do.

What counts as an emergency? If you’re asking yourself whether something is truly an emergency, it probably isn’t. Real emergencies tend to make themselves obvious. 

The first qualifier is that the situation is sudden and unexpected. At the risk of sound a bit grim, here are a few examples that might qualify: 

• You or a loved one has an unexpected medical issue
• Your car breaks down, and you rely on it for work
• A loved one passes away, and you need to travel for the funeral 
• You suddenly lose your job or have a reduction in hours 
• You need to make an essential home repair (like a broken water heater in winter) 
• You have to move suddenly, due to issues with your living situation 
• You need to leave a toxic work environment without a plan for your next job

We never want these things to happen to us, but no one gets through life without a few emergencies. Your fund gives you a cushion to land on when these crises arise. 

The hidden benefits of an emergency fund

There are two “secret” benefits to having an emergency fund that I want to call out.

First, an emergency fund gives you options in a moment of crisis. When you’re dealing with an unexpected event, the last thing you need is money stress limiting your choices. That’s where your emergency fund steps in—giving you the freedom to handle problems the right way, not just the cheap way.

For example, imagine your landlord suddenly decides to end your lease, and you have less than a month to move out. Without an emergency fund, you might have to move back in with your parents or settle for a cheap apartment. 

With an emergency fund, you could house yourself in an Airbnb or hotel to buy yourself more time, or move into a better apartment and use the emergency fund to pay for the deposit. 

The second hidden benefit of an emergency fund is that it reduces anxiety. If you’re like me, you get anxious when you think about running out of money. Knowing that you have an emergency fund waiting in the wings can bring down your blood pressure. 

Now that we’ve covered what an emergency fund is, let’s talk about how to actually build one when you’re juggling all your other expenses.

How to build an emergency fund (when money is tight)

Putting aside money for emergencies might feel impossible when you’re already stretching every paycheck. Between paying for school, covering rent, buying groceries, and paying off student loans as quickly as possible, your money probably feels spoken for before it even hits your account.

I get it. When I first started saving for emergencies, I had exactly $43 left over each month after paying bills and reserving some spending cash. It felt pointless to even try saving it. But by the end of the year, that $43 turned into $516, which was enough to cover my tooth mishap.

Get an overview of your expenses with a smart budget

The first step is knowing exactly where your money goes each month. I know—budgeting isn’t exactly thrilling, maybe even intimidating. But you can’t find extra money to save if you don’t know where it’s going in the first place.

Fortunately, we have the perfect place for you to start, with our comprehensive guide to college budgeting and downloadable template.

How much should your emergency fund be?

Once you know your monthly expenses, you can set a target for your emergency fund. 

Standard advice is to save three to six months of expenses—a good goal, but an ambitious one. 

If that seems out of reach, it’s fine to start small. As I mentioned, my first emergency fund was only around $500. Today I’m (much older) and much closer to the recommended six months. 

I recommend creating three goals for varying lengths of time—perhaps one month, six months, and twelve months. Your first goal might only be to save $300 or $100 or even just $50. Worry less about the amount you set, and more about creating a new habit of saving. 

Here’s an example of how you might calculate your emergency fund with a plan like this. 

Using the budgeting template above, let’s imagine this was your final budget estimate: 

In this scenario, you have just about $140 left over each month, after all your expenses and your lifestyle is paid for. 

You know that in a few months you are likely to get a small raise, and at the end of the semester, you’ll save money by moving to a different apartment in a cheaper neighborhood. 

So here’s a plan you might develop: 

This approach lets you build your emergency fund gradually while being realistic about your current budget constraints. It also takes advantage of the changes you know are coming—your raise and the potential move to a less expensive apartment.

How to grow your emergency fund even faster

If you want to speed up your emergency fund growth, you have three options: 

1. Spend less 
2. Earn more 
3. Make your money earn money 

Let’s look at each one, starting with the easiest. Money-saving resources incoming! 

Start spending less

This is the part of budgeting that most people dread, but I encourage you to reframe your thinking around this—consider your mission to spend less like a game. What creative strategies can you come up with to reduce your spend? 

Your budget will be a huge help here. Look through your expenses with a critical eye. What can be eliminated or cut down? For example, last year I realized I was paying for an old Audible subscription, even though I switched over to Spotify for audiobooks months ago. Sayonara, Jeff Bezos. That saved me $12/month right there. 

If you find saving opportunities like this, cancel the auto payment, and create a different autopayment that moves money from your spending account to your savings account. You’ll start adding more to your emergency fund without even noticing the difference in your spend. 

There are many other strategies for saving money, and they’re all covered thoroughly in these articles: 

Start earning more

The more income you bring in, the more you can dedicate to your emergency fund. 

Depending on your current situation, the best way to increase your income may be to negotiate for a promotion or raise, or start looking for a different job that will pay you more. 

We have resources to help with all of that: 

If a promotion or career change isn’t in the cards, your other option is to bring in side income. Once again, we’ve got many resources to help you get started: 

Make your money earn money

Where you choose to stow your emergency fund will make a difference for how quickly it grows. 

Since emergencies don’t schedule themselves, you need your money to be accessible—but that doesn’t mean it can’t earn interest while it waits. 

High-yield savings accounts often offer better returns than traditional savings accounts, sometimes 10-15 times more. That means your emergency fund grows faster without you doing anything extra.

Check out our article about the best savings accounts for students, or our investing 101 guidance for more details on which account to choose. 

Building an emergency fund takes time, but every dollar you save is a step toward financial security. Whether you start with $50 or $500, future you will be grateful for the safety net you’re creating today. The peace of mind that comes from knowing you can handle life’s surprises? That’s priceless.