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Guide to building an emergency fund

Learn what an emergency fund is, review the simple steps to build a fund that’s tailored to your needs, and explore additional resources to help maximize your savings.

Already know the basics? Skip ahead.

What’s an emergency fund?

An emergency fund is an amount of money set aside in a dedicated savings account to help provide a financial safety net for life’s unexpected challenges. Common emergencies like unexpected medical bills, car troubles, or job loss can be overwhelming—but with an emergency fund, you can face these challenges with peace of mind.

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Your emergency fund can help protect you from two types of financial emergencies:

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Spending shocks are unplanned expenses like a broken windshield or a root canal. Saving enough to cover at least half a month’s worth of living expenses can help you prepare for potential spending shocks.

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Income shocks are the unplanned loss of income. While these events may happen less frequently, they can be a significant setback to your financial plan. Over time, you should aim to build three to six months' worth of living expenses in your emergency fund to prepare for potential income shocks.

Simple steps to build an emergency fund

To get started, it’s important to understand the basics of calculating your monthly expenses. These can be broken down into fixed expenses, like rent or mortgage payments, and variable expenses, such as groceries or entertainment. Fixed expenses are consistent each month, while variable expenses can fluctuate. Calculating both types will help you determine your total monthly spending and set realistic savings goals. For a more detailed breakdown and to enter your specific expenses, use our expense worksheet. Simply input your monthly expenses for each category and select “calculate” to generate your total. If you already know what you spend each month, skip ahead to step two to determine your savings goals.

Expenses worksheet

Whether it’s a spending shock or an income shock, these types of emergencies can be costly and overwhelming. The right amount to save is different for everyone.

For a spending shock aim to save at least half of your monthly expenses, as calculated in step one.
For an income shock aim to save three-six months’ worth of your expenses.

Use our equations to calculate savings goals that are specific to your needs.

Spending shock = your monthly expenses calculated in step one ÷ two (half of your monthly expenses)

Income shock (three months) = your monthly expenses calculated in step one × three

Income shock (six months) = your monthly expenses calculated in step one × six

Now that you’ve assessed your monthly expenses in step one and determined how much you’d need to save for emergencies in step two, it’s time to make a plan to build savings into your budget. Saving regularly can be tough, but it’s important. Whether you’re dealing with a large, unexpected bill or a job loss, these situations can be stressful and expensive. Debt can make it even harder to save, so it’s a good idea to address it as part of your plan. Check out our resources for tips on saving more, cutting back on unnecessary spending, and managing debt effectively.

10 ways to save more money

How to manage debt: tips to improve financial wellness

Depending on which type of emergency you’re saving for-spending shocks or income shocks and your appetite for risk-there are different account types and investment options you should consider for each.

For spending shocks: Consider account types and investment options that allow you to access your money easily, such as cash investments.

If you want easy access to your money, potentially higher yields than a traditional savings account, and potential FDIC coverage, you may want to consider a cash management account–the Vanguard Cash Plus Account is a savings account alternative that allows you to keep both your short-term cash and long-term investments at Vanguard, all in one place.

If you want a low-risk investment and aren’t concerned about the FDIC coverage, holding money market funds in a taxable brokerage account may offer the right combination of accessibility, low risk, and income potential.

If you’re sure you won’t need the money on short notice, a Certificate of Deposit (CD), might be a good fit for you.

For income shocks: Consider account types that allow for additional investment options with potential for higher, long-term growth.

A taxable brokerage account is a standard nonretirement investing account with no early withdrawal penalties, making it easy to access your money when you need it. You can hold mutual funds, ETFs, stocks, bonds, and more, which can generate returns and have a higher potential for growth.

A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals of your contributions, at any time. You can hold mutual funds, ETFs, stocks, bonds, and more, which can generate returns and have a higher potential for long-term growth.

It’s important to note if you decide to invest within these accounts, the investments you choose may not offer the same safety and accessibility as savings accounts and cash investments. However, they can still be useful in helping you sustain shocks to your income, and any returns you earn can be used to help fund other goals.

The sooner you start saving, the more time you have to benefit from compounding. Compounding is when the money you save grows over time—not just from earning interest, but also from other types of earnings depending on where you put your money. For example, some savings accounts pay you interest, which is money the bank gives you for keeping your money there. If you invest in things like stocks, your money might grow if the value of those investments goes up (this is called capital appreciation), or you might receive small payments from the company (called dividends).

Over time, the money you earn from these sources can also start earning more, which helps your total savings grow faster. Keep in mind, if you have many years until retirement, that’s a long-term goal. If you’re planning to buy a home in five years, that’s a short-term goal. The longer your time frame, the more time your savings have to grow through the power of compounding, which can bring you peace of mind later.

Open an account

Before you decide to withdraw from your emergency savings, take a moment to define what an emergency means to you. An emergency is an unexpected and unwanted expense, like a major home repair or a broken HVAC system–it’s not an excuse to upgrade something you don’t need. If you encounter a situation that you can plan for without causing financial hardship, it may not qualify as an emergency, and you should set a goal and save for this separately. Learn more about different types of investment goals.

After you use your fund, make sure to replenish it as soon as possible. If you stick to your budget and savings schedule, it’ll help you be prepared for whatever life throws your way.

Explore more resources to secure your financial future

Dive deeper into building and maintaining your emergency fund with our educational articles. Whether you’re just starting out or looking to improve your savings strategy, we’re here to help. Use our tools and calculators, like the expenses worksheet, to get a clearer picture of your finances and make informed decisions.

Starter path

Emergency fund: Why you need one

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Personal finance

Emergency fund: Why you need one

An emergency fund can help you deal with life's unexpected events. Learn how much you should save and where to keep your emergency savings.

Article

Building an emergency fund

Avoid these 5 ways to pay for emergencies

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Personal finance

Avoid these 5 ways to pay for emergencies

When you need the money fast, you might be able to come up with several ways to get it. But they may not be the smartest solutions.

Education

Building an emergency fund

10 ways to save more money

A man wearing a blue shirt and glasses smiles and holds a laptop in front of a red background.

Personal finance

10 ways to save more money

Article

Financial wellness

How to manage debt: tips to improve financial wellness

A woman seated in a coffee shop is reading on her mobile phone.

Personal finance

How to manage debt: tips to improve financial wellness

Struggling with debt? Learn how to manage debt with practical tips and strategies. Create a plan, organize your finances, and improve your financial wellness.

Article

Financial wellness

Accelerated path

How to get the most from your cash

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Investment types

How to get the most from your cash

Explore how much cash you should maintain in your portfolio. Learn how savings selection could affect your investment outcomes.

Article

Cash investments

What are cash investments?

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Investment types

What are cash investments?

Cash investments are readily available short-term financial instruments. They have high liquidity, minimal market risk, and a short maturity period—usually less than 3 months.

Education

Cash investments

What is a cash management account?

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Investment types

What is a cash management account?

Education

Cash investments

What are money market funds and how do they work?

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Investment types

What are money market funds and how do they work?

Money market funds can give you the opportunity to get a better return on your cash, including your emergency fund, money sitting in a savings account, or a spending fund.

Education

Cash investments

Certificates of deposit (CDs)

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Investment types

Certificates of deposit (CDs)

CDs are deposit obligations issued by commercial banks to raise funds for their business activities. Investors lock in the market interest rate at the time of purchase, and the rate is usually fixed for the term of the CD. Vanguard Brokerage imposes a $1,000 minimum for CDs purchased through Vanguard Brokerage, with $1,000 increments thereafter.

Education

Cash investments

A framework for considering cash in your portfolio

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Investing strategies

A framework for considering cash in your portfolio

Our framework for cash investing takes into account risk tolerance, investment horizon, and funding levels.

Article

Managing portfolios

Tools & Calculators

Expenses worksheet
Use this calculator to create a realistic retirement budget that includes basic and discretionary expenses.

You’re ready to build your emergency fund

Great work! You’re ready to build your emergency fund. Even a small amount set aside in your emergency fund now can help bring you peace of mind and financial security for the future.

What you’ve learned:

What an emergency fund is
The difference between spending shocks and income shocks
How to calculate your personalized savings goals
Ways to budget and commit to your goals
The importance of liquidity when choosing an account
The difference between cash management accounts, CDs, and money market funds

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Why choose Vanguard to hold your emergency savings?

A home for your emergency savings 
A strong emergency fund starts with a secure, reliable place to grow your savings. At Vanguard, we help keep your money accessible–so you’re ready if life doesn’t go as planned.  

Ready when you need it–flexible if you don’t 
Your emergency fund is built for the unexpected. But if life stays steady, it can also support short-term goals–like a wedding, move, or a major purchase.  

50 years of putting investors first 
For over five decades, we’ve focused on helping investors succeed. With clear goals, low costs, and a long-term mindset, we’re here to help you build financial confidence–starting with a strong foundation like your emergency fund.

Use what you’ve learned, to get started today.

Build your emergency fund

All investing is subject to risk, including the possible loss of the money you invest. There may be other material differences between products that must be considered prior to investing.

The Vanguard Cash Plus Account is a brokerage account offered by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation, member FINRA and SIPC. Under the Sweep Program, Eligible Balances swept to Program Banks are not securities: They are not covered by SIPC but are eligible for FDIC insurance, subject to applicable limits. Money market funds held in the account are not guaranteed or insured by the FDIC but are securities eligible for SIPC coverage. See the Vanguard Bank Sweep Products Terms of Use (PDF) and Program Bank list (PDF) for more information.

Guide to building an emergency fund

What’s an emergency fund?

Your emergency fund can help protect you from two types of financial emergencies:

Simple steps to build an emergency fund

1. Assess your monthly expenses

2. Determine your savings goals

3. Review different budgeting methods

4. Consider account types and investment options that match your objectives

5. Start saving now

6. Use your fund wisely and replenish when needed

Explore more resources to secure your financial future

Starter path

Accelerated path

Tools & Calculators

Expenses worksheet Use this calculator to create a realistic retirement budget that includes basic and discretionary expenses.

You’re ready to build your emergency fund

What you’ve learned:

Why choose Vanguard to hold your emergency savings?

Use what you’ve learned, to get started today.

Expenses worksheet
Use this calculator to create a realistic retirement budget that includes basic and discretionary expenses.