by Maja Majewski

The Ultimate Simple Emergency Fund Guide

You know you need an Emergency Fund. But let’s be real: saving up a few months’ living expenses can feel overwhelming, especially if you’re starting from scratch. In this ultimate guide to your Simple Emergency Fund, we’ll share everything you need to know about starting an Emergency Fund.
Emergency Funds

If there’s one thing that most personal finance experts can agree on, it’s that everyone needs to have some emergency savings. Having a few months of living expenses in a separate account dedicated to savings is a good idea, because it can help you cover unplanned expenses without going into debt.

But it’s harder than it sounds; only 40% of Americans would cover an unplanned expense of $1,000 from their savings. More than a third of Americans would need to borrow the money in some way to cover the expense–either with a credit card, personal loan or from family or friends.

And if you consider how much most things we’d consider ‘emergencies’ might cost, $1,000 isn’t really all that much.

Most financial experts say it’s a good idea to set aside three to six months of living expenses in an Emergency Fund. If you know how much your basic monthly expenses are each month (here are some tips on how to calculate those) — we’re talking housing, utilities, food, healthcare, transportation, and debt payments — then you can use these equations to estimate how much you’ll need to set aside.

1 month of basic expenses X 3 = 3 months of living expenses

1 month of basic expenses X 6 = 6 months of living expenses

So if your monthly expenses are $2,000, then you’ll want to set aside between $6,000 and $12,000.

If the idea of saving up a few months of living expenses feels overwhelming, that’s completely normal, especially if you’re living paycheck to paycheck. We’re here to help!

Why you need an Emergency Fund: Examples

In an ideal world, you’d never have to touch your Emergency Fund, and it could just keep on growing. But the reality is, you’ll probably have to use your emergency savings from time to time — for things like flat tires and emergency vet services and a flight home for a family emergency.

Here are just a few Emergency Fund examples that Simple customers have shared with us over the years: - Job loss/furlough - Unexpected medical and dental emergencies - Emergency pet care - Emergency travel - Home repairs - Car repairs - Bigger-than-expected tax bills - Broken laptop or other job essentials - Funeral costs

The two things that all of the items on this list of Emergency Fund examples have in common is that they are 1) expensive life events that are 2) unexpected. If you’re already dealing with job loss, medical emergencies for yourself or a loved one, or the frustration of a home or car that needs repair, financial pressure can make an already tough situation even worse.

Having a stash of emergency savings can give you peace of mind, with better, more flexible options when facing a difficult situation.

Why You Need an Emergency Fund Read more about why you need an Emergency Fund here.

3 Essential Emergency Fund Tips

Emergency Fund Tip #1: Set a target amount.

Most financial experts say it’s a good idea to set aside three to six months of living expenses in an Emergency Fund. If you know how much your basic monthly expenses are each month — we’re talking housing, utilities, food, healthcare, transportation, and debt payments — then you can use this equation to estimate how much you’ll need to set aside.

1 month of basic expenses X 3 = 3 months of living expenses

1 month of basic expenses X 6 = 6 months of living expenses

So if your monthly expenses are $2,000, then you’ll want to set aside between $6,000 and $12,000. If your monthly expenses are $4,000, then you’ll want to save up a bit more - between $12,000 and $24,000.

If the idea of saving up a few months of living expenses feels overwhelming, that’s completely normal, especially if you’re living paycheck to paycheck. Figure out how much you’d ideally have set aside just for emergencies - and then commit to working towards that over time.

Emergency Fund Tip #2: Build up your Emergency Fund over time.

As the old adage goes, the best way to eat an elephant is one bite at a time. Small contributions to your Emergency Fund can and will add up.

Think of your Emergency Fund like a piggy bank that you keep on your desk. Look for ways to add the ‘spare change’ in your financial life to this piggy bank! There are a few tools in your Simple account that can help you make this happen: - Turn on Round-up Rules to save the change on every debit transaction in your Simple account. When your Round-up balance reaches $5 or more, we’ll transfer it into your Savings Goal! - At the end of each month, look across your Expenses to see if you have any money leftover. If you do, transfer it to your Emergency Fund! - Set up a Funding Schedule to transfer a small amount - $5 or $10, or whatever you can afford - to your Emergency Fund with each paycheck.

Emergency Fund Tip #3: Emergency Fund vs. Savings Accounts

A common question we hear about Emergency Funds is: What’s an Emergency Fund vs. a savings account? Technically, an Emergency Fund is just a type of savings - it’s savings with a specific purpose in mind. Because your Emergency Fund has a specific, and very important, purpose, it helps to keep it separate from the rest of your savings to prevent accidentally spending it on non-urgent discretionary items!

We recommend opening a Protected Goals Account for your Emergency Fund. That money will be safe from accidental spending and your Emergency Fund will earn interest and grow whenever you’re not using it. You can learn more about Protected Goals Accounts here.

What if I have debt?

It’s hard to disagree that it’s a good idea to save money towards an Emergency Fund — but what about if you have a lot of debt to pay off? What if you have credit card debt with a ridiculously high interest rate and it’s crushing your soul not to pay it off ASAP?

Should I save money or pay off debt first? Here are some perspectives on paying off debt vs. saving for emergencies.

How to get started

How to Build an Emergency Fund Faster You’re ready to start contributing to an Emergency Fund — go you! Here are a few ways to grow your Emergency Fund even faster: Like starting with an Account Buffer, automating your saving, and finding another source of income to help fill your fund!

Open a Simple Account

Of course, we recommend opening a Simple account if you want to get serious about saving and growing your money. Our banking and budgeting tools are designed to help you feel confident about your money, and to help you achieve your savings goals, like funding your Emergency Fund.

Here’s how having a Simple account can help you build your Emergency Fund:

  • Protected Goals Accounts: If you keep your Emergency Fund in a Simple Protected Goals Account, you’ll be able to earn a competitive interest rate on your balance!

  • Simple Visa® Debit Card: Avoid credit card debt and get on top of your spending with the Simple debit card, accepted everywhere Visa debit cards are accepted.

  • Round-up Rules: When you turn on Round-up Rules, we’ll round up to the next dollar on every settled debit transaction, and then send those funds from your checking account to your Savings Goal in your Protected Goals Account

Interested in getting started with Simple? Apply now!
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