Emergency Funds 101: How Much You Really Need and How to Start

Whether you like it or not, America’s economy is on a wild roller coaster ride with inflation spikes, mass layoffs, and rising costs at every sharp turn. One minute, it can feel stable, and then the next, you’re hit with an upside-down loop that can throw your budget off track.

That’s why having a well-padded emergency fund is not only the smart thing to do, but it’s also completely essential. Now more than ever, having that financial cushion to fall back on will make all the difference between holding on for dear life until things get stable versus spiraling out of control and getting thrown off the rails.

Quick, What is an Emergency Fund Again?

An emergency fund is exactly what it sounds like. It’s cash you set aside for any unexpected expenses that come up, like getting laid off from work or getting hours reduced, medical bills, home and car repairs, and more. 

According to a new Bankrate study, 59% of Americans in 2025 don’t even have enough to cover an emergency of $1,000. Senior Economic Analyst Mark Hamrick from Bankrate also said in a statement:

“We are essentially a paycheck-to-paycheck nation.”

That’s why it’s crucial to have an emergency fund so you don’t have to rely on credit cards, getting loans, or worse, pulling from your retirement savings when you need some extra cash.

How Much Do You Actually Need?

The general rule of thumb is 3 – 6 months of ESSENTIAL expenses, but lately, it’s safer to accommodate for at least 12 months since the economy feels so unstable. 

Essential expenses are housing, groceries, insurance, and transportation. Stuff you need to survive. Start putting in a Google sheet how much your monthly essential expenses are to get an idea of where to start. How much is your rent? What do you spend at the grocery store? How much is your insurance? Do you still have car payments?

So, if your household’s essential monthly expenses are $5,000, you should aim for at least a $30,000 emergency fund that can carry you for 6 months. 

Of course, you can adjust based on your lifestyle, too. Freelancers and self-employed folks might want to accommodate for more, and those with dual-income households OR a stable job may not need as much. 

Don’t let higher numbers scare you, though; start saving however much you can, even if it’s 500 or $1,000. 

How to Start Building Your Emergency Fund, Even if You Feel Broke

We have a detailed write-up on how to save $1,000 fast, even if you’re starting from $0, but here are the general highlights.

When you know how much you need to save, break it down into micro-goals so it’s easier to manage and less intimidating. For instance, you could save $20/week or $5/day. 

Open a high-yield savings account, like Marcus by Goldman Sachs, which offers a 3.75% APY to keep your money in. This means if you have $1,000 in the account, after a year, you’d have earned $38 interest from the APY. That’s an extra $38 from just your parked money! A normal Chase or Wells Fargo savings account would only let you earn 10 cents with the same amount! And high-yield savings accounts are safe as they’re FDIC-insured, and you can access the money whenever you want. 

Automate your transfers to set it and forget it! Don’t stress, and let the work be done for you. Choose the amount you want to transfer every week and forget about it. After a few months, you’ll be pleasantly surprised. This tactic also prevents you from procrastinating on saving as well!

If you get any tax refunds, bonuses at work, or cash gifts from friends or family, remember to add some to your emergency fund to speed up the progress! Side hustles and cash back apps can help it along, too. Some of our favs include 

• Swagbucks: Join over 15 million people already paying games for $$$
• Fetch: Scan receipts for free gift cards. Even digital ones!
• Testerup: Earn up to $120 per test trying games and apps

Where to Keep Your Emergency Fund

We briefly mentioned it in the last section, but hands down, you need to keep your emergency fund in a high-yield savings account, not a regular savings account. This is a perfect example of how your money can earn interest while you sleep, based on the bank’s APY. 

Choose a bank that’s been around for a while and has good reviews. You can also poll your friends and family to see who they’re banking with and get that referral bonus, too. I personally use Marcus by Goldman Sachs (3.75% APY + 0.25% bonus for 3 months), but I also hear great things about SoFi (3.80%), Ally (3.60%), and Wealthfront (4.00%).  APY rates may change depending on when you read this.

Don’t keep your savings in a checking account, either. It’ll be hard to differentiate what you’ve saved so far, and you’ll be tempted to use it. Keep the money for bills and expenses in your checking account instead. 

When and When NOT to Use Your Emergency Fund

Real emergencies, such as medical bills, job loss, and major car or home repairs, are absolutely worthy of using emergency funds. 

What are NOT emergencies are things you WANT, like a new phone, a new purse, those concert tickets, and DoorDash cravings. 

We think you’ll do fine differentiating between the use cases beautiful you can’t, here’s a list of questions to ask yourself before dipping into it:

• Is it urgent? Should it be handled immediately, or can you explore alternative methods of payment?
• Is it absolutely necessary? Does it affect your basic needs like housing, health, safety, transportation, etc.?
• Do I have other means of paying for it? Can other savings, a side hustle payout, etc., cover it?
• If I don’t cover it now, will it put me in a worse position later? For example, will late fees, interest racking up, or make a small issue grow bigger?

If you answered yes to most of these, then it’s a good example of how to use your emergency fund. If not, step back and hit pause to rethink it.

The Money Move

Honestly, the hardest part is just getting started. Take that first step; even saving $10 is a win, and you can snowball that further when you open a high-yield savings account to automate transfers.

Figure out your monthly expenses and build your emergency fund. Even a small one makes a huge difference in your peace of mind. In the future, you’ll thank yourself when you need to use it!