Personal Finance 101 - Building Your Emergency Fund

By: Brittany Mollica

When we meet a new client, one of the first financial planning topics we review is a cash reserve – money set aside in savings as an emergency fund.

Why? The reason your cash reserve is so important: you can never predict when your car is going to break down, when you might lose your job or when you’ll need to take a trip to Urgent Care. These surprise expenses can be costly, and you don’t want to be forced to withdraw from your retirement accounts or take on credit card debt just to pay the bills. 

How? It’s often best to set up an emergency fund separate from your regular checking account. You will want to keep this money in a savings or money market fund, which will pay you a slightly higher interest rate than your checking. These types of accounts are very liquid, meaning you can access the money at any time, and you won’t have to worry about losing value in the stock market. 

How Much? Generally speaking, you will want to have at least 3 to 6 months of your average living expenses saved up in this account. Your actual goal will depend on your household size, and the number and stability of your income sources:

  • 3+ months of living expenses works if you are single and have two jobs (or one job and another steady stream of income) OR if you are married and both of you are working.
  • 6+ months of living expenses is better if you are single and have one job OR if you are married and only one of you is working.

To roughly calculate your monthly living expenses, review several months of your bank account statements and credit card statements and add up all of your regular expenses. Naturally, there will be some variances from month to month, but this should give you a ballpark idea of your average expenses. If this is difficult to calculate, your financial advisor can help you pinpoint the expenses that should be covered.


  1. Start now. Even if you find yourself years into your career, better late than never. (If you’re still in high school or college, props for reading a personal finance blog and wanting to start saving. Get started now and you’re way ahead of the game!)
  2. Start small. If you don’t have any sort of cash reserves yet, set a smaller goal of saving $1,000 for this account. Once you’ve reached this first goal, it will seem easier to save up for 3-6 months of expenses.
  3. Set up an automatic weekly or monthly transfer from your regular checking or savings account into your emergency fund.  If you save just $100 a week, that will be over $5,000 in a year! By making the savings transfer automatic, you’ll hardly notice the money moving to your emergency fund account.
  4. If you get a bonus from your work (or have a side hustle such as consulting work, pet-sitting, etc.) consider depositing a portion of it into your emergency fund right away. Being able to add an extra $1,000 to that account every so often can add up quickly.
  5. Create a budget and stick to it. If you feel like you might be spending a little too much on restaurants each month (I know, $5 is a great deal for margaritas), set a goal to spend just a little less next week to allow more room for savings. Unfortunately, the answer is not always “Treat yourself!”

While setting up your cash reserve may not seem like an exciting use of your money, seeing as how you could probably earn a higher return in the market, you will be so thankful to have that cash readily available in case of an emergency. And you will have an emergency.

As always, we encourage you to reach out to a financial advisor with any questions about establishing a budget or creating your emergency fund.


This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.