Emergency savings accounts are an important part of any financial plan. The purpose of these accounts is to cover or offset unforeseen financial emergencies. Such emergencies can include car repair, medical expenses, or even employment termination. Your account should ideally be separate from your primary savings account. This helps reduce the temptation to spend it on non-emergency expenses. It’s important to not only understand what an emergency account is, but also why it’s necessary and how to start building one of your own.


Think of an emergency savings account as insurance – you may not ever need it, but if you do, you’ll be glad you have one. Imagine your car breaks down. Or worse, you lose your job. That’s where an emergency savings account comes in. Depending on your circumstances, you may not be able to cover such an expense with your monthly income. But, if you have an adequate emergency savings account, you can use it to cover the expense and avoid a negative impact on your current income. Such an account also helps avoid taking on debt to cover the expense. According to personal finance experts, your emergency savings account should be able to cover at least six months of living expenses. That way, in even the most adverse circumstances, you’ll have a good financial cushion.


Understanding the importance of an emergency savings account is the easy part. The hard part is building one. Six months of emergency savings may seem like a lot, but the tips below will help you come closer to reaching that goal:

  • Create a budget. Then, identify any subscriptions you can live without or any spending that you can reduce. Take those savings and contribute them to your emergency savings account.
  • Set up auto-deductions from your paycheck to fund your emergency savings account. This will ensure your account continues to grow with the need for any additional action. Start with an amount you feel comfortable with, large or small, and increase it as you can.
  • Take any bonuses or supplemental income you receive and put that towards your emergency savings. This additional income will help to kick start or further grow your account in a meaningful way

Putting it Together

Unforeseen emergencies happen to everyone without warning and without control. That’s life. But, that doesn’t mean you can’t prepare for these events when they do eventually arise. With adequate emergency savings in place, you’ll be more ready to handle the emergency. This will help maintain your financial plan and allow you to continue contributing to your retirement savings.