How Should You Approach Building a Personal Emergency Fund?

How Should You Approach Building a Personal Emergency Fund?

Picture having the confidence to handle any financial curveball life throws your way. To help you achieve that, we sought insights from business leaders on building a personal emergency fund. From starting small and staying consistent to maximizing money market yields, these seven actionable strategies will empower you to create a strong and reliable financial safety net.

• Start Small and Stay Consistent
• Automate Monthly Savings
• Pay Yourself First
• Use Unexpected Income Wisely
• Budget Deliberately
• Automate Savings as Non-Negotiable Expense
• Consider Money Market Yields

Start Small and Stay Consistent

The most effective approach to building a personal emergency fund is to start small and stay consistent, using a step-by-step strategy like Dave Ramsey’s “Baby Steps.” Begin by saving $1,000 as a starter emergency fund (which you deposit in a high-yield savings account), then work towards building a fund that covers three to six months of living expenses. From there, use the discipline you’ve built from those first two exercises to start building an after-tax investment portfolio (where you invest in index funds).

Having an emergency fund was a game-changer for me when I found myself in-between jobs. At the time, I had saved up $15,000, enough to cover several months of expenses. This fund gave me the peace of mind to focus on finding the right job without rushing into the first opportunity out of financial desperation. I was able to pay my rent, utilities, and other essentials without going into debt, and the stability it provided allowed me to make thoughtful career decisions. That experience reinforced the importance of having a well-stocked emergency fund. It’s not just about money; it’s about freedom and security when life throws you a curveball.

Mark Howser, Enterprise SEO Consultant, Digital Snowstorm

Automate Monthly Savings

Building a personal emergency fund is one of the most important steps to ensure financial security, regardless of market conditions or unexpected life events.

The most effective approach to building an emergency fund is to start small but remain consistent. I recommend setting aside a specific percentage of your income each month—ideally 3-6 months’ worth of living expenses. This can be done by automating transfers into a separate savings account so you’re less tempted to spend it. For those in commission-based roles, like myself, it’s essential to set up the fund during higher-earning months to prepare you for slower periods.

Having a personal emergency fund has been incredibly beneficial in my career, especially when market conditions became unpredictable. There was a period during an economic downturn when my income fluctuated, and I found myself facing unexpected personal expenses. Fortunately, because I had built up a strong emergency fund, I was able to continue paying my bills, managing personal costs, and focusing on my business without added stress. This financial cushion allowed me to stay calm and think clearly, ultimately leading to better decision-making and a smoother recovery for my business and personal life.

An emergency fund provides peace of mind and flexibility, helping you navigate life’s challenges with confidence and control.

John Gluch, Owner, Gluch Group

Pay Yourself First

The most effective approach I’ve found for building a personal emergency fund is the “Pay Yourself First” method, combined with automation.

Here’s how it works:

1. Determine a fixed percentage (ideally 10-20%) of your income to save each month.
2. Set up an automatic transfer of this amount to a separate savings account immediately after receiving your paycheck.
3. Treat this transfer as a non-negotiable expense, just like rent or utilities.
4. Choose a high-yield savings account to maximize interest earnings.
5. Aim to accumulate 3-6 months of living expenses in your emergency fund.

This approach is effective because it:

• Makes saving a priority, not an afterthought
• Reduces the temptation to spend the money elsewhere
• Leverages the power of habit and automation

A personal experience where having an emergency fund was particularly beneficial occurred during the early days of my company. We faced an unexpected technical issue that required immediate attention from a specialized IT consultant.

Thanks to my emergency fund, I was able to cover this unplanned expense without disrupting our business operations or resorting to high-interest loans. This experience not only saved our young company from a potential setback but also reinforced the importance of emergency funds in both personal and business finances.

In my work with personal finance, I often advise people on the importance of emergency funds, especially when considering loans. Having this financial buffer can prevent the need for high-interest emergency loans and provide peace of mind in uncertain times.

Elias Bülow, Founder, Credwise

Use Unexpected Income Wisely

I believe that the most powerful strategy is to take advantage of unexpected income.

Allocation of windfalls and bonuses is one of the most effective techniques for increasing your emergency fund. Researchers have found that almost 50 percent of Americans haven’t got $400 saved up for an emergency. Let’s say you got $1,000 in a tax refund—allocating it towards your emergency fund can make a big difference. I even recommend that my clients automate the transfer of a portion of their tax refunds into their emergency savings account. The “set it and forget it” strategy will make saving surprise income easy.

Earlier in my career, my car spontaneously broke down, needing extensive work. Meanwhile, I was paying off student loans as well. Fortunately, I’d been investing in my emergency fund since I was younger, through a surprise cash inheritance from an uncle and bonus checks over the years, so that I could take care of the sudden expense without accruing any new debt or ceasing student loan payments. This experience affirmed my notion of the need for an emergency fund and has remained part of the financial counsel I provide to my clients.

Kevin Huffman, Day Trader | Finance & Investment Specialist/Advisor | Owner, Kriminil Trading

Budget Deliberately

The most effective approach I’ve found for building a personal emergency fund is actually quite simple: budgeting. I begin by analyzing my monthly income and expenses, then identify essential needs vs. discretionary wants, and finally calculate how much I can set aside for emergencies. By being deliberate about budgeting, I can identify areas where I can reduce spending without significantly impacting my lifestyle. And there are plenty of software tools that allow you to sync up your bank accounts for more efficient tracking. A time when this emergency fund proved particularly beneficial was recently when I faced an unexpected veterinary expense. Having the funds readily available allowed me to cover the costs without incurring debt or financial stress.

Jack Perkins, Founder and CEO, CFO Hub

Automate Savings as Non-Negotiable Expense

The most effective approach to building a personal emergency fund is to automate savings and treat it like a non-negotiable expense. Setting up a dedicated account and consistently transferring a percentage of income ensures steady growth without relying on willpower. Start small—aim for one month of expenses—and gradually build to three to six months’ worth. Having an emergency fund was invaluable when an unexpected car repair bill arose. Instead of resorting to credit or disrupting regular expenses, the fund covered the cost, reducing stress and financial strain. This safety net reinforces financial stability and provides peace of mind for uncertainties.

Daniel Bunn, Managing Director, Innovate

Consider Money Market Yields

These days, aside from my personal and health insurance, I find the yields from the money market to be good until the Fed lowers rates, and long-term bond rates start to fall. Actually, if new bond rates fall, the older current bonds at over 5% will be worth more. Everyone needs a personal emergency fund. Not all non-discretionary expenses are planned. Emergencies can happen to everyone.

Zain Jaffer, CEO, Zain Ventures

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