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Build My Emergency Fund

The Beginner’s Guide to Building an Emergency Fund the Right Way

You probably can’t see the future—and life is full of surprises.

Whether it’s a car accident or a sudden job loss, an emergency fund is your personal safety net for when those surprises come with unexpected expenses.

What is an Emergency Fund?

emergency fund​An emergency fund is essentially a safeguard in place to cover unforeseen costs outside of your routine expenses. It’s a way to quickly access money in case of an emergency.

With an emergency fund in place, you won’t be left scrambling to cover those costs or diverting funds away from other financial goals you’ve been saving towards. A savings account for emergencies can also help keep you from racking up interest-laden credit card debt when you’re in a pinch for extra funds.

Do I Really Need an Emergency Fund?

Beginning an emergency fund can seem difficult even in the best of times, and you might wonder if keeping a portion of your income held away for those “what-if” moments is worth it.

Seeing the value in an emergency fund begins with accepting that hard times fall on everyone—it’s not a question of “if” something happens, but a question of when.

And when hardships do come around, you’ll be grateful for the safety net an emergency fund can provide.

Some of the top reasons you might need an emergency fund include:

  • You have a medical condition that racks up bills, maxes out your insurance deductible, and eats up your sick days
  • You live far away from family and would have to travel last-minute for an emergency
  • You own your own home and are responsible for upkeep and repairs
  • You’re self-employed or otherwise wouldn’t qualify to claim unemployment benefits


If the Covid-19 pandemic has taught us anything, it’s that the world can change in an instant. Having your own personal insurance in the form of an emergency fund can help keep you afloat when the abnormal becomes the new normal.

How Much Money Should Be in My Emergency Fund?

You’ve decided to start an emergency fund—but how much money are we talking about?

Well, that number is unique to you and your situation. A good starting place is to think of the biggest possible emergency that could happen to you and your family. For most people, this would be an unexpected job loss.

In your worst-case scenario, how much time would you need to recover your income stream? Creating a recovery timeline will help you narrow down your emergency fund goal.

To calculate your exact goal number, figure out how much money your family needs for the essentials each month, like rent, food, and transportation. You’ll want to multiply that number by your recovery timeline—we recommend at least 6 months.

A shortcut to consider if you don’t want to add up all your monthly essential costs is to multiply your monthly income by the months needed to recover your income stream (get a new job). A rule of thumb that some follow is to have 6 or more months of your salary saved up.

Now that you’ve calculated how much money you’ll need to save up for in case of an emergency, you can create a plan to start saving toward your goal.

Where Should I Keep My Emergency Fund?

Since emergencies can happen at any moment, you’ll need to keep your emergency fund in an easily accessible place. On the other hand, leaving that money in your checking account can make it harder to track while also tempting you to spend more than you want to.

So what’s the best place to keep your emergency fund to keep it liquid but separate from your spending accounts?

The good news is that you’ve got several options, including:

  1. High-yield savings accounts
  2. Money market accounts
  3. Certificates of deposit (CDs)
  4. Traditional bank accounts
  5. Roth IRA accounts – One note here: If you withdraw from your Roth IRA before it’s five years old, you may be subject to penalties. In addition, you can withdraw contributions at any time without penalty, but if you withdraw earnings, you may be subject to penalty. You can learn more about withdrawal rules here.

Each of these options have pros and cons, including varying liquidity, so explore all your options when looking for the best place to keep your emergency fund.

build my emergency fundHow Can I Start Building My Emergency Fund?

You know you need an emergency fund and you’ve got your savings target—what next?

Getting started can feel complicated. How much can you afford to save each month? How should you prioritize your emergency fund in relation to other financial goals? What happens when you reach your target number?

We keep it simple using the Lasso App. With Lasso, you can create a customized goal for building an emergency fund, using personalized strategies to plan, invest, and save towards your goals. Plus, you can also connect directly with experienced financial professionals to answer all of your questions.

With a user-friendly interface, Lasso allows you to set specific timelines and contributions to reach your goals. You can also use the app’s features to play around with your inputs and see how they would change your plan, or easily change your plan when the unexpected happens.

You may not be able to see the future—but with an emergency fund in place, you can be ready to take on whatever the future holds.


How Much Should Be in Your Rainy Day Fund?

Everyone should have a rainy day fund. Why? Because it gives you a safety net if something unexpected happens and you need money fast.

rainy day fundThe point of a rainy day fund is to cover surprise expenses you weren’t planning for. For example, your car breaks down or you have a medical emergency or you lose your job.

In all of these cases, you don’t want to be scrambling to find funds. You also don’t want to be forced to divert funds from your other goals.

Diverting funds from your other goals is detrimental for a couple reasons. First, it slows down your progress toward those goals. All of a sudden, you will find yourself off course for the life milestones you want to hit.

Second, you might actually be moving yourself backwards without realizing it. If you try to withdraw from certain accounts, you might actually lose money.

There are some accounts that incur taxes or penalties if you withdraw your money before a certain time or if you use the money for a purpose other than that designated by the account.

Retirement, health savings and investment accounts are all examples of this. If you withdrew money from these account types to pay for an emergency situation, you would likely incur a penalty.

Therefore, it is important to have a specific account with savings designated for an emergency. In other words, a rainy day fund.

Now that we’ve established the importance of having a rainy day fund, the next question is how much money should be in that fund?

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How to Set a Savings Target for Your Rainy Day Fund

If the point of a rainy day fund is to cover unexpected expenses, you won’t know how much money you need until one of those unexpected situations happens. So how do you set a savings target?

A good place to start is with the biggest possible emergency expense that could come your way.

For a lot of people, this would be losing your job and thus your income stream, meaning you have to live off your savings until you can find a new job.

In a worst case scenario, let’s say it takes you six to nine months to find a new job. You will have to cover your living expenses for that period of time.

If you’ve lost your income stream, then that money will be coming out of your savings. This is where your rainy day fund would come in.

calculating your goalCalculating Your Goal

Calculate how much money you would need to cover, at a minimum, your essential expenses each month. Essential expenses are the things that you need to operate on a daily basis like your rent or mortgage payments, food, clothes and transportation.

Next, multiply that monthly number by at least six to determine the total amount you need saved to live off of for six months without income.

That number becomes your savings target for your rainy day fund.

The cost of six months of living expenses is likely a large number. That is why it is a good goal to set for your rainy day fund.

Even if you (hopefully) do not face a job loss, that amount of saving will likely be enough to cover other large expenses that may come your way like a medical emergency or a car repair.

Of course we hope that you won’t have to dip into this fund but you can rest a little easier knowing that you have a plan in place for the unexpected.


What Should Your Emergency Fund Cover?

If you’ve been considering growing an emergency fund, you’ve likely had the thought: what is an emergency fund really used for? Is it for late-night taco runs or when the car breaks down?

You’re not alone – it can be tough to decide which financial burdens fall to your emergency fund and which belong elsewhere in your budget. If you pull from your emergency fund for non-emergencies, then you could drain the whole thing before a real emergency comes along.

Luckily, Lasso is here to help. We’ve outlined the major reasons why you might need to dip into your emergency fund, and what to do once the deed is done.

What is an Emergency Fund?

An emergency fund is your own personal safety nest against unexpected financial stressors. It’s a way to access money lickity-split in case of, well, an emergency. Building an emergency fund is the first step toward getting your finances in order.

You may be on track to meet your financial and life goals, but one emergency could derail all your progress and set you back to ground zero – an emergency fund acts as insurance against those situations.

You might wonder if you really need one in the first place – after all, you’ve got a clean bill of health and your home is in top-notch condition. But emergencies come in all forms – car accidents, furnace going out, medical emergencies – and no one is immune. When and if lightning does strike, you’ll be grateful that your emergency fund was there to keep you grounded.

What Should You Use Your Emergency Fund For?

While “emergency fund” does have the word “fun” in it, avoid the temptation to spend it on that brand new phone or an in-home arcade machine. A fully funded emergency fund will typically run between $10,000 and $20,000, and it can be hard to resist pulling from it.

But if you pulled money from your emergency fund whenever you wanted, that would defeat the purpose of the emergency fund in the first place. So what should you use it for?

Job loss

Even if you feel totally secure in your employment, outside factors can influence your job in ways you never could have predicted. For instance, take the Covid-19 pandemic, in which an estimated 9.6 million Americans lost their jobs.

Losing your job is a major financial setback for anyone using their income to cover living expenses. How will you pay for food and housing? What about the internet you need to search for a new job? And don’t forget about the wardrobe refresh you’ll need for those interviews.

A fully funded emergency account should be able to keep you afloat for three to six months in case of a sudden job loss, giving you time to secure new employment before it runs out.

Car issues

If you live in a car-dependent area, your car is probably your lifeline to the outside world. It’s how you get to and from work, doctor appointments, the grocery store, and even your favorite sushi bar. For many, life without a working vehicle just isn’t realistic.

So when ol’ Bessy doesn’t start up one morning, you’re probably feeling the panic kick in. You need to get ahold of the mechanic, set up a rental vehicle, and figure out what role your insurance company will play when it comes time to write the checks.

Lucky for you, your emergency fund is rolling into the shop right by your side to help you (and ol’ Bessy) figure it all out.

Medical emergencies

Medical expenses can pop up even for those with a clean bill of health. Whether it’s a tumble down the stairs or something more serious, you definitely don’t want to be stressing about bills while you’re recovering.

An emergency fund is a key part of your medical care – keeping you afloat as you take time off work, pay for prescriptions, or cover any other health-related expenses.

Home repairs

If you’re a homeowner, then you likely know that all repairs and maintenance fall directly on your shoulders.

You might think that homeowner’s insurance would cover any sudden home repairs, but keep in mind that you likely have a deductible you’d have to pay before that insurance would kick in.

Furthermore, there are probably home maintenance costs your home insurance doesn’t cover, like earthquakes or your weird Uncle Jimbo accidentally falling through the kitchen window.

Pet emergencies

Medical emergencies extend to your four-legged family members, too – and they likely don’t have as good of an insurance plan as their bipedal caretakers.

You would do anything for your pets, right? That includes keeping your emergency fund updated and ready for whatever those little furballs may need.

Remember to Reimburse

Keep in mind that once you make use of your emergency fund and get back on your feet, you’ll need to replace the money spent to keep the account fully-funded. This might mean cutting back on your spending money for a few months or otherwise rearranging your budget.

Whether it’s acute appendicitis or the spontaneous combustion of your vehicle, you’ll be happy to have an emergency fund in place to keep you on track for your financial goals.


Where Should You Keep Your Emergency Fund?

You’ve done the hard part and built a budget, stuck to the plan, and amassed some savings – now what?

Choosing where to store your emergency fund is a toughie. Does it belong in your checking account? Behind that pizza in the freezer? Should you just spend it and let your worries melt away? (That last one is a definite “no”).

To help you decide, we’re laying out our top three picks for places to store your emergency fund. Ready to find the perfect digs for your dough?

#1 Rule of Emergency Funds: Keep it Liquid!

While it may seem counterintuitive to keep a huge chunk of cash out of your investments, one of the most important aspects of an emergency fund is a little something called liquidity.

Liquidity is a measure of how available your money or assets are – how easy it would be to get ahold of that cash in the event that you need it. The cash in your wallet right now? That’s as liquid as it gets. The money you’ve put into purchasing and updating your home? That’s not very liquid, because you’d have to first sell the home (or liquidate it) in order to access those funds. The money in your 401(k)? Sure, it’s yours and you can grab it, but early withdrawals from retirement accounts come with a lot of penalties and tax implications.

Emergency funds are intended to be used for emergencies, so you need the cash to be easily accessible – but that doesn’t mean you should start stuffing your mattress with cash. Your emergency stash can still work for you while being on call 24/7.

The 3 Best Places to Keep Your Emergency Fund

Even though cash is the most obvious liquid form of savings, it’s likely not the best option. Other account types, such as high-yield savings accounts or CDs, offer a little more bang for your buck in the long run.

1. High-Yield Savings

If you have a savings account through your local bank, you’ve probably noticed those occasional deposits labeled “interest” popping up every now and again – that’s the money your bank pays you for keeping your cash in their hands.

But that interest rate, called an annual percentage yield (or APY) is likely next to nothing. In fact, the national APY right now sits at a measly 0.07%.

But fear not! There is another, newer savings account type that is here to save the day: the high-yield savings account!

High-yield savings accounts are typically offered through online-only banks, such as Citibank or Ally. Since these banks don’t have brick and mortar locations, they’re able to use the money saved to offer higher APYs than traditional banks.

Ally offers a whopping .90% APY, and Citibank offers a 1.01% APY – much higher than the national average. In the long run, you could earn a lot more interest just by switching to an online bank. It may not be the same as investing in the S&P 500 (which boasts an average return of about 10%) – but it’s a less risky way to still generate a bit of passive income.

Of course, keep in mind that an online bank is slightly less liquid than a traditional bank – you can’t just pull up to the drive-thru to withdraw your funds. But if you’re okay with waiting a few days to access your emergency fund, then a high-yield savings account might be the best option for you.

2. Certificates of Deposit (CDs)

It’s time to talk CDs – and not the ones you were burning in your mom’s basement in the 90s.

Certificates of Deposit, aka CDs, are another way to boost your interest rate. Offered through banks and credit unions, a CD is basically an agreement between you and the issuer: you promise to not touch the money for a certain amount of time, and they give you an APY boost in return. The end date of the agreement is referred to as the “maturity date.”

The good and bad on CDs: Along with higher interest rates, a CD can give you a little extra motivation to leave your savings untouched. That’s because CDs incur penalties if you withdraw your funds before the maturity date. While some banks make allowances in the event of an emergency, you’ll want to be clear on what exactly counts as an “emergency” before you sign on the dotted line. Scraping together this month’s rent probably isn’t on the list.

Generally seen as a safer investment, CDs do offer lower return potential than investments like stocks and bonds – but they also offer more peace of mind. The interest rate is fixed, so unlike the stock market, you’ll know exactly how much money you’re going to receive at the end date. For example, a 5-year CD currently has an average interest rate of .51%.

Pretty much every financial institution offers some assortment of CDs, so you can shop around to find your perfect match. Inquire about lengths of time, APYs, and terms of early withdrawal to find the CD that best matches your emergency fund needs.

3. Roth IRA

A Roth Individual Retirement Account, or Roth IRA, is an account generally reserved for long-term retirement planning. This type of account is the riskiest of the three options, but also offers the most earning potential as far as passively growing your savings.

It’s risky because you’re investing in the stock market, and there’s always the chance that as the market loses value, your funds will also whittle away. However, with more conservative investments, past market performance tells us that in the long run your Roth IRA has a better chance of keeping up with inflation rates than a savings account or CD.

The best part of a Roth IRA? You can withdraw your contributions tax-free at any time without penalty (heck yeah!). The caveat is that your contributions are taxed when you add the money to the account – and there are also tax implications and penalties associated with withdrawing any earnings before your retirement. So if you contributed $12,000 to your emergency fund and it’s grown to $15,000, you’re in the clear as long as you leave that extra $3k in earnings alone.

Another important thing to remember is that there are contribution limits. In 2022, the cap is $6,000 per year for those under the age of 50 and $7,000 per year for those over the age threshold.

And there you have it: three great options for storing your emergency savings, all with unique benefits to fit your needs and grow your funds.

Still not sure which option is right for you? You can always ask an expert. Connect with a financial advisor to get personalized advice and stash your cash with confidence.


How to Find an Advisor to Help You Build an Emergency Fund

Lasso offers a quick, easy-to-use interface that doesn’t require any financial know-how and puts you in the driver’s seat as you build plans for your emergency fund and find the professional help you need to be successful.

Start on your financial planning journey quickly with an easy profile-building process. Where many financial apps require that you link to multiple accounts before you do anything, Lasso lets you get right to work.

Get Started with Lasso

Once you’ve signed in to Lasso with a profile, it’s time to set a goal for your emergency fund. How much wealth do you have now? How much do you want, and by when? As you answer these questions in Lasso, your financial plan will start taking shape.

Choose the “Emergency Fund” goal and answer these five questions to build your plan:

1. Goal: How much do you want to save?

2. Time: When do you want to save it by?

3. Savings: How much do you have now?

4. Contributions: How much can you save every year?

5. Portfolio: How much risk are you comfortable taking?

Your plan is now ready!

Now, you can play around with your inputs to see how they would impact your plan. See how a shorter time frame or more aggressive saving could impact your results. In just a few clicks, your financial plan is ready to go.

How to Find a Financial Advisor for Your Emergency Fund

Once you have a plan, you can browse a community of financial advisors and share that plan with as many advisors as you’d like for ideas on how it could be improved. Share your plan and see how they might be able to help improve it, without having to sign or pay anything.

You can share your plan with an advisor you already know, or browse the Lasso community for an advisor who matches your style. You can filter them by gender, experience, location and specialty to make sure you find an advisor you’re comfortable with.

After you share your plan for your emergency fund, you wait for the advisor to respond with a proposal, which will show how they would improve your plan if you worked with them. When you get back proposals, you can decide whether or not there is a conversation worth pursuing.

People who build a plan to reach their savings goals are 10x more likely to accomplish them. The sooner you get started, the more you can save and the sooner you’ll have a fully funded emergency fund.

Ready to get started? Click here to download Lasso now.