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Financial security is important in life and the idea of not having it can be overwhelming. This is why saving for an emergency is so important. It’s a word that’s said often, but many people ask themselves, “What is an emergency fund and how much should I save?” 

The truth is that this varies depending on the person, their income, and their expenses. There are different ways to determine how much to save and how to do it. We’re going to take the guesswork out of emergency funds for you. You’ll learn what an emergency fund is, how much to save, and ways to reach your goal!

What Is an Emergency Fund?

An emergency fund is money set aside for just that, emergencies. When defining emergencies, they can range from a medical emergency with large bills to home repairs, like a new water heater. It’s anything that can have a major financial impact on your life. 

Typically, this money is set aside in a separate bank account. This helps protect against the temptation to use the money for other things, like dinner out or a vacation. While these things are nice to have, you’ll be thankful you have your full emergency fund should you ever need it. 

Why You Should Have an Emergency Fund

Life is full of surprises, both good and bad. When those bad surprises do come up in life, you want to be sure that you’re not caught unprepared and in a hard spot financially. Emergencies fall into a wide range of categories, such as medical emergencies, car repairs, and home repairs. This can also safeguard you against any loss of wage that unexpectedly comes up. A common response to emergencies is to use a credit card or take out a quick loan. However, credit cards and emergency loans come with high-interest rates that can make it difficult to recover your emergency savings after you’ve made it through.

How Much Money Should Be In an Emergency Fund?

Now that you know why you should have it, it’s important to fully understand how much money should be in your emergency fund. Just like any financial topic, the amount needed in your fund varies based on several factors that we’ll break down below.

What is an Expense in an Emergency Fund?

The first step to determining how much you need to save is to identify your expenses. It’s important to recognize what an expense is and what is “nice to have”. For instance, your rent or mortgage is an expense. This is something that must be paid each month with no exceptions. 

Money spent on going out to eat or on vacations may seem like an expense, but for the sake of your emergency savings, they are considered bonuses. If you’re in a position to have to use your emergency fund, you’ll want to cut back on these extras until you’ve rebuilt your backup.

How Do I Calculate My Expenses for an Emergency Fund?

Look at your monthly bills (housing, car payments, utilities, etc.) and let that determine your monthly expenses total. It’s also important to understand that your fund is not to completely replace your income. Rather than looking at your net income on the month, look at what’s going out every month. Be sure that you can cover those necessary payments.

How Many Months Should Be Saved in an Emergency Fund?

Once you’ve determined your monthly expenses, it’s time to multiply them by the number of months you want coverage for. Typically, the rule of thumb is to have 3-6 months’ worth of expenses saved in your emergency fund. However, if you are the sole breadwinner for your family or have variable income, it’s best to have up to 9 months saved. This adds to your security. 

These numbers can seem overwhelming at the beginning. The same way you climb a mountain one step at a time, that’s how you can approach saving for your fund! Small goals within the larger fund total can help it feel manageable. There are several ways to save, and just like an emergency fund, there are different options that work for different people. 

How Crowdfunding Can Help You Build an Emergency Fund

One option to save for your emergency savings is to use crowdfunding. You can either crowdfund the full amount or a smaller portion. While many people associate crowdfunding with charities, it’s really just a way for people to help each other directly. It may seem like a large task to start your own fundraiser, but we make it easy to start your emergency fund.

Gather the Details 

The first step is finding out how much money should be in an emergency fund. Using the criteria above, you can determine your fundraiser’s final goal. This could be the entirety of your fund or a portion.

Launch Your Fundraiser

The next step is telling your story. It could be helpful to answer the question, “What is an emergency fund?” and why it’s important. People like to know more about the fundraisers they’re donating to and have a better understanding of why it’s needed. The goal is to connect with your donors.  

Share Your Fundraiser

One of the keys to the success of your fundraiser is to share it! There is a way to share for everyone. If you’re social media savvy, posting to your followers and asking them to share can multiply your reach tenfold! If you want to go a different route, emails and word of mouth are just as effective. The key to sharing your fundraiser is to choose a method that you want to keep up with.

Thank Your Supporters 

Once your fundraiser is live and you’ve started to receive donations, be sure to thank all your donors for their generosity. If words aren’t your strong suit, there are tons of templates out there to help you craft a great thank you message. 

If you’re looking for inspiration for your next fundraiser read Disaster Relief Fundraising Ideas to Help People With Emergencies.

Completing Your Emergency Fund

Now that you’ve learned about what an emergency fund is and how much money should be in your fund, it’s time to start saving! It may seem like a huge task at the beginning, but once you break it down piece by piece, your emergency fund seems like a completely doable task. 

There’s no better way to start your emergency fund than starting your fundraiser today! We make it easy for you to follow a step-by-step process to get your fundraiser started. Soon, you’ll be explaining to all your friends what an emergency fund is and why it’s so important! 

For additional help read How to Build an Emergency Fund.