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Emergency Fund



Financial emergencies can strike unexpectedly, causing stress and uncertainty. It’s crucial to be prepared for such situations, especially when you are already dealing with debt. In this article, we will discuss effective strategies to prepare for financial emergencies while managing debt, ensuring a more secure financial future.

Forty-four percent of Americans can’t cover a $400 out-of-pocket expense, according to the Federal Reserve. Meanwhile, the average emergency room visit can run you $150-$3,000, says a study from John Hopkins Bloomberg School of Public Health – and that’s only one type of unexpected expense.

The same survey found that only 16% of respondents are “very comfortable” with the amount they have in emergency savings while 46% – predominantly low-income workers – said they are “somewhat uncomfortable” with their emergency savings amount.

Whether you’ve recently dealt with a financial emergency or are trying to figure out how much you should save, having a safety net can reduce stress down the road when unexpected expenses strike.

Assessing your current financial situation

To prepare for emergencies while dealing with debt, it’s essential to assess your current financial situation. Start by evaluating your debt and creating a repayment plan. Determine the total amount owed, interest rates, and minimum monthly payments. This assessment will help you understand the magnitude of your debt and develop a strategy to pay it off effectively. Additionally, consider determining your emergency fund needs based on your monthly expenses and potential unexpected costs.

Why you need an emergency fund

When you are budgeting hopefully you are planning for the future by saving money for vacations or retirement. But are you planning for the unknown? Life is full of unexpected financial emergencies – it’s not a matter of if but when. Medical expenses, car repairs, and job loss all happen when least expected. But do you have an emergency fund to pay for any of the above?

As tempting as it may be, don’t berate yourself for not having an emergency fund. Instead, learn your lesson and be ready when the next emergency occurs.

Jobs disappear

When your income goes away, you need emergency savings more than ever. Ideally, you should have enough saved to keep paying rent or mortgage payments, monthly bills and other expenses for at least a few months.

Saving tip: Sign up with your employer to have a percentage taken directly from your paycheck and deposited directly into your emergency savings account.

Work hours get cut

Even if you don’t lose your job, an employer can reduce your work hours any time, not just in the midst of a health and economic crisis. Companies can also run into financial trouble and cut hours or freeze wages, 401K contribution matches and bonuses.

Saving tip: If you can, deposit any discretionary money into an emergency fund savings account. Even if you can only spare $200, that’s still a good start toward building a basic emergency fund of $1,000. Then keep making regular deposits.

Cars still break down

If your car needs necessary repairs, you’ll need to fork over payment, whether you have a job or not. If you’re forced to pay with a credit card because you don’t have emergency savings.

Emergency savings tip: Ask your mechanic what repairs or parts to anticipate in the near future and set some money aside from each paycheck so you can pay with cash.

You can’t help others if you can’t help yourself

Let’s say you have a job but your best friend loses hers. Or your older parent needs money to help pay the bills. You can’t easily help people you care about when you have no savings to fall back on if you lose your own job, get sick or have to relocate for a new job.

Saving tip: Sell something you don’t use or need online. Sell a few items and you can open an emergency savings account. The more you have in savings, the more fun it is to add to it consistently and watch the balance grow.

Building an emergency fund

Building an emergency fund is crucial to protect yourself during unforeseen financial challenges. Set clear savings goals and prioritize saving over luxuries. Allocate a portion of your income each month towards your emergency fund until you reach your desired target. To expedite the process, explore additional income opportunities, such as a side gig or freelancing. Remember, every small contribution adds up and brings you closer to financial security.

Open a bank account with a sign-up bonus

Many banks offer bonuses ranging from $100 to $300 when you open a savings or checking account and receive the required amount of direct deposits within the specific time frame. For example, three years ago, Wells Fargo offered a $200 bonus for opening a checking account with a minimum deposit of $25.

To receive the bonus, the account holder needed to receive at least $1,000 in direct deposits. There are savings account bonuses too, but don’t be deterred if the offer is for a checking account. You can treat the account as savings. Besides, you may want to write a check or use the account’s debit card to cover expenses when you have an emergency.

To find bank account bonuses, use the search term “banks with bonuses for opening an account.”

Detox your finances with a spending fast

You’ve probably heard of detox fasts with diet, but did you know that taking a “spending fast” for as little as 21 to 30 days can free up some serious money? With a spending fast, you intentionally cut out or reduce daily and monthly expenses, so you spend less.

For example, if you go out for lunch or dinner every day, commit to preparing most of your own meals at home. To save on gas, try to schedule errands in batches. If you can cut your grocery bill in half by shopping at a discount grocer, go for it. You could cancel or pause a couple of streaming services.

Then take the money you would have spent and deposit it in your emergency savings account. You may even find that the $200 to $400 you saved inspires you to implement some of your new spending fast habits into your monthly budget.

Have your employer make contributions

If you can set up a direct deposit from each paycheck into your emergency savings account, the balance can increase significantly (and painlessly) in a short time. Even $50 from each biweekly paycheck adds up to $1,300 in a year. Direct deposits of $100 from each check could add $2,600 a year.

Earn extra income from a side hustle

One of the fastest ways to add cash to an emergency fund is to earn more money from a side hustle or part-time job. You may not want to work all day at your main job and then work a second shift at a part-time job or side hustle. But if you can commit to working a second job for just a couple of months, you can earn enough to build a respectable emergency fund.

How fast can that extra income add up? Here’s an example. If you work 15 hours a week for eight weeks at a part-time job that pays $15 an hour, you’ll earn $1,800. After taxes, you’ll still have more than enough to save at least $1,000 or more in an emergency savings account.

How to pay for an emergency without an emergency fund

So if you find yourself in a bind without an emergency fund, check out these tips to make fast cash without breaking the law. But remember these may only bring in a small amount of cash so these should be more of a way to find seed money to start a fund not a way to pay for thousands of dollars in medical or auto bills.

Sell yourself

No, not like that. There are people who are in need of things like hair, plasma, or even physical labor.

Before you lose your hair due to stress from the money you don’t have – sell it. There are websites where you can sell your hair for anywhere from $100 to $1,000, depending on the quality and length. You’ll be asked questions about whether you drink, smoke, or color your hair. But, in the end, it’s a quick way to avoid going into debt over an unexpected expense.

You can donate blood, but that’s usually worth no more than a free meal and movie ticket. If need cash, your plasma is in high enough demand for medical research. The pay rates vary, but you can expect to make $20 to $50 per donation.

The American Red Cross will only allow you to donate plasma once every 28 days. Since this is more about money and less about altruism, here’s a tip: Go to a private blood donation center. Private centers will let you donate twice in one week, as long as there is a day between donations.

You may have a neighbor looking for help around the house. Maybe they need their lawn mowed, or new furniture assembled, and don’t have the tools. That’s where you can earn money doing those tasks for them. Apps like TaskRabbit connect you with local people who pay to have their chores taken care of.

Sell your stuff

Have clothes hanging in the closet that mean less to you than the emergency expense you’re facing? Sell them. Stores like Plato’s Closet or Crossroads Trading Co. will pay for your slightly-used clothing. You walk in with a pile of your clothes and in about an hour or so, you’ll walk out with a wad of cash.

Before you have that garage sale, check to see if any of your old stuff is valuable. Just be aware that pawn shops rarely offer you the full value of what you’re selling – they’ll offer less than what they think they can get for it.

Websites like will exchange your unused gift cards for money. Don’t expect the exact amount, because the site will only trade you cash for up to 92 percent of the gift cards value. But desperate times call for desperate measures.


There are plenty of crowd-funding sites out there to choose from, including GoFundMe and Indiegogo. Do your homework before picking one – some, like Kickstarter, only give you the money if you meet a specified goal. While crowd-funding a bill may not be the most popular way to generate money, it has worked in the past.


The old-fashioned alternative to crowdfunding. If you don’t have 10 friends and 10 family members, try other places: like church, and your neighbors, and the street corner. (Well, maybe as a last resort.)

Create a budget and cut expenses

A well-structured budget is essential for managing your finances while dealing with debt and preparing for emergencies. Analyze your spending habits and identify areas where you can cut expenses. Look for unnecessary subscriptions or services that you can eliminate. Implement frugal living strategies, such as cooking at home instead of eating out or shopping during sales. Redirect the money saved towards debt repayment and your emergency fund.

It’s wonderful you have an emergency fund but, is it enough? Below are eight signs it’s time to focus on raising your emergency savings balance.

  1. You have no emergency savings fund: There’s nothing skinnier than a non-existent emergency savings fund. And it’s easy to throw up your hands and say “why bother?” when you’re starting from nothing. However, you have to start somewhere, and time will pass whether you begin building emergency savings or not.
  2. You’re constantly draining emergency savings: Are you constantly tapping your emergency savings, causing it to dwindle to a scary low amount? Or maybe you only make withdrawals occasionally, but the small amount you keep for emergencies gets gobbled up fast by even the cost for a small car repair.
  3. Your job security is threatened: Don’t wait until you lose your job to start thinking about how you’ll pay the bills with no income or reduced income. Start socking away as much from each paycheck as possible not to avoid a dire financial emergency later.
  4. You’d be in trouble after a month or two with no income: What if you lose your job or become seriously ill and must take unpaid time off? If you think a month or two of emergency savings will get you by, you may want to reconsider. Even if you have enough to pay for rent, utilities and other bills for two months, you know how life goes.
  5. Your savings covers only the smallest emergencies: Sure, you can cover the cost of a new battery or putting new brakes on your car, but paying for a bigger emergency expense – spending thousands for a new home air conditioner, for example – isn’t within reach. If that’s the case, it’s time to work on fattening your emergency savings to an amount that could cover at least a couple of big emergency expenses at once.
  6. You’re using credit cards to pay for emergencies: If you’re charging car repairs, medical bills and unexpected travel plans on a credit card, that defeats one of the main purposes of having an emergency fund. Work on building your emergency fund so if things get tight, you don’t have to rack up more debt on a credit card.
  7. You have crappy health insurance: Sadly, many people can’t afford good health insurance, so you’re not alone with your short-term policy that pays absolutely nothing until after you meet your $12,000 deductible. That’s little consolation, though, if you get slammed with a big medical bill.
  8. You’re a one-income household: Whether you’re single or have a family, if you’re the sole breadwinner, you won’t be able to rely on a second income to pitch in if you lose your job or have a costly emergency expense. But you can always rely on a good-sized emergency savings account to get you through.

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The right amount of emergency money to keep in cash

Having a sufficient emergency fund is crucial for financial stability. One consideration when building an emergency fund is determining how much of that fund should be held in cash.

While the ideal amount of emergency money can vary depending on individual circumstances, a commonly recommended guideline is to have three to six months’ worth of living expenses in cash. This range provides a buffer to cover essential expenses during unexpected situations, such as job loss or medical emergencies.

However, additional factors should be considered for specific situations. For example, if you have dependents, a higher cash reserve might be necessary. Similarly, if you work in a highly competitive industry with limited job opportunities, you might want to lean toward the higher end of the range. Consider your health and the quality of your insurance coverage. If you have pre-existing health conditions or limited insurance coverage, you may want to keep a larger cash reserve to handle potential medical emergencies. If you live in an area prone to natural disasters, you might need a larger cash reserve to cover immediate needs during such events.

Divide your cash into multiple secure locations to minimize the risk of loss or theft. Choose safe and accessible locations such as a secure home safe, lockbox, or designated drawer. It’s important to reassess and adjust your cash reserve over time. As your financial situation changes, such as an increase in income or decrease in expenses, you might need to reallocate some of your cash into other financial instruments. Consider investing any surplus emergency funds beyond the necessary cash reserve.

Determining the right amount of emergency money to keep in cash requires careful consideration of various factors. By evaluating your monthly expenses, job stability, insurance coverage, and potential emergencies, you can calculate an ideal cash reserve. Remember to balance cash with other financial instruments to diversify your portfolio. Safely store your cash in accessible locations and regularly review your emergency fund to keep it up to date.

Managing debt effectively

Effectively managing your debt is crucial while preparing for emergencies. Prioritize high-interest debts and allocate more funds towards paying them off. Consider negotiating with creditors for lower interest rates or settlements to make debt repayment more manageable. If you find it challenging to handle your debt alone, seek professional help from debt counseling services or financial advisors. They can provide guidance and assistance tailored to your specific situation.

Protecting yourself with insurance

Insurance plays a vital role in safeguarding your financial well-being. Evaluate your insurance needs and ensure you have adequate coverage. Consider health insurance, home insurance, auto insurance, and other relevant policies based on your circumstances. Shop around for affordable options, comparing prices and coverage terms. Having the right insurance coverage can mitigate the impact of unexpected events on your finances.

Seeking professional financial advice

If you find yourself overwhelmed by debt and struggling to prepare for emergencies, seeking professional financial advice can be beneficial. Consult with a financial advisor who can assess your situation comprehensively and provide tailored guidance. They can help you create a solid plan to manage debt, build your emergency fund, and improve your overall financial health. Additionally, debt counseling services can offer support and resources to navigate challenging financial situations.



How much should I save in my emergency fund while dealing with debt?


Financial experts recommend having enough emergency savings to cover all expenses for at least five or six months. That means even if you earn $5,000 a month, you’d need to save $25,000 to $30,000. If you earn $7,000 a month, the figure is even more daunting: $35,000 to $42,000. Who wouldn’t be intimidated by those steep amounts?

But you don’t have to focus on that lofty six-month goal just yet. You can start small, saving until you have at least $1,000 dollars in emergency funds. Then that achievement can inspire you to keep building emergency savings to a higher amount.

The amount you should save in your emergency fund depends on your individual circumstances. Aim for at least three to six months’ worth of living expenses as a general guideline.


Can I negotiate with creditors to lower my debt interest rates?


Yes, it’s worth contacting your creditors to negotiate lower interest rates or explore settlement options. Many creditors are willing to work with you to find a mutually beneficial solution.

Learn How To Negotiate Lower Credit Card Interest Rates »


Should I consider debt consolidation to manage my debt?


Debt consolidation can be a viable option to simplify debt repayment by combining multiple debts into a single loan. However, it’s essential to carefully evaluate the terms and consider any associated fees before making a decision.

Learn  if debt consolidation can help you with »


What should I look for when purchasing insurance?


When purchasing insurance, consider factors such as coverage limits, deductibles, premiums, and exclusions. Ensure the policy aligns with your specific needs and provides adequate protection.

Learn more about Affordable Health Insurance »



How can a financial advisor help me in managing my debt and preparing for emergencies?


A financial advisor can provide personalized guidance and strategies to help you manage your debt effectively, build an emergency fund, and improve your overall financial situation. They can create a comprehensive plan tailored to your goals and assist you in making informed financial decisions.

Learn more about how talking to a credit counselor can get your finances in order »

Preparing for financial emergencies while dealing with debt requires careful planning and proactive measures. By assessing your financial situation, building an emergency fund, creating a budget, managing debt effectively, securing insurance coverage, and seeking professional advice, you can enhance your financial preparedness and reduce the stress associated with unexpected events. Remember, every step you take towards financial stability brings you closer to a brighter financial future.

Connect with a certified credit counselor to review your options.

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