I hear different versions of the same story all the time. Staying on budget is tough but do-able but something always seems to happen that isn’t in the budget. It could be that a child needs a last minute flight home and there is no time to shop around for the best fare. Or a car breaks down and needs a repair, and the cost is just what it is. Sometimes it is a medical situation and payment has to come before insurance comes through to cover the cost.
Unexpected but necessary expenses like these can quickly derail your budget if you don’t have cash on hand. That’s when the credit card comes out. It can solve the problem in the moment and there is value to that. But it has now created a future financial strain that in many cases could have been avoided if you had an emergency fund in place.
What is an emergency fund and why don’t more people have them?
Most people know they should have an emergency fund. The reason they don’t usually comes down to one of two things.
The first is simple math. When you’re carrying debt, there often isn’t anything left to set aside. In our 2026 Everyday Debt Survey of adults with at least $10,000 in unsecured debt, only 34% of men and 21% of women said they can cover their monthly expenses and still put money away. For everyone else, the money runs out before the saving starts.
The second is a belief I hear constantly: an emergency fund only works if it’s just sitting there, and money sitting still isn’t money working. We want to maximize our investments so our money earns interest. That instinct isn’t wrong. Wealth creation is often driven by investments, not an hourly wage. But the math flips the minute you’re paying credit card level interest. Without that cushion, the next unplanned expense goes on a card at 20-plus percent. Money that prevents new debt at those rates is working harder than almost anywhere else you could put it.
What is an emergency fund? An emergency fund is cash set aside specifically earmarked for unplanned but necessary expenses. It is kept separate from your everyday checking account so it stays in its own bucket and does not get drawn into everyday expenses. It is not the same as your general savings account. It is your money, already there, that is off limits to anything except a true emergency.
How To Build Your First Emergency Fund
Building up a solid emergency fund won’t happen overnight. The most important thing when you are beginning to save is to start with a starter number. This is not the same as your ideal number. A good long term goal to have in the back of your mind is 3-6 months of expenses. The truth is that that is not realistic as a short term goal for most people. Consider saving $1,000 as a good benchmark to aim for when you begin. If you prefer to tie it to your budget as a way to measure, start with whatever one month of essential bills costs you to make it more realistic if you have the financial means and can be a little bit more aggressive. That will cover things like a car repair or a vet bill that would otherwise hit your high interest credit card.
Find Your Definition of a Financial Emergency
This is something that has frustrated me when I hear stories about people who have emergency funds and yet choose not to use them. They have trouble defining what level of financial emergency justifies dipping into their emergency fund. In my mind, an emergency is something unexpected but urgent and not-optional. You have to come up with the money. This could be a job loss where you have to replace income. It could be a home repair after a hurricane damages your roof. It might be damage to something that you need to earn income, like a car repair so you can go to work, or a damaged computer or work phone that you need to run your business.
Pick a Home for You Emergency Fund
Emergency fund money must first and foremost be accessible to you in an emergency. Ideally it also has some investment return. A good example would be a high-yield savings account.
One pro-tip: put the money at a different bank or financial institution than your other accounts. This keeps the money out of sight, out of mind. It will still be just as accessible but out of sight in your daily routine. Less temptation is a good thing here. It is a balance: you want fast access when you need it but you want just the right amount of friction so it doesn’t feel like an extension of your checking account when you are just a little short on cash.
Deciding When to Save and When to Pay Off Debt
One of the key challenges of building an emergency fund is how to build it when you have debt to pay off. Here there needs to be balance as well. Which one is more important? The answer is both are important.
If you take every single penny and put it toward paying off your debt, the next time a surprise expense comes along, it goes right back on that credit card. It is hard, but try to move away from using the credit card as your financial safety net.
So the order matters more than the amount. Start by building a small buffer, even a few hundred dollars, while you keep making your payments. Once that starter fund is in place, shift more of your extra money toward the debt. By putting money toward both goals, even a modest starter fund can break the cycle and help you continue to chip away at what you owe. Even a small buffer can change the trajectory and put you in a better position.
This is where talking to a debt specialist can help build a plan that has just the right balance between tackling the debt you have while also making room for the safety net of an emergency fund. By keeping new debt from piling up, with the help of the right support, the upside will start to gain momentum and the weight will start to feel lighter and more manageable.
Frequently Asked Questions About Emergency Funds
How do I save for an emergency fund if I have debt? The truth is that you can and should do both. It is a challenge and that is something to understand from the start and give yourself empathy. Slow and steady wins the race. Build a small starter emergency fund of even a few hundred dollars and you will get a mental boost just seeing the existence of that safety net. Going forward, split money between continuing to pay off debt and building your emergency fund. The goal: move towards three to six months of expenses.
Why can’t I use my credit card as an emergency fund? The truth is, you can. But that doesn’t mean that you should. If it is a true crisis, make the best choice from the options that are available. But keep in mind that once you carry a balance, interest starts adding up. Rates can be over 20 percent. That turns that one time emergency into an ongoing new debt cycle.
What counts as an emergency? Too often even when someone has an emergency fund, they are so trained not to use it, that they put an unexpected but urgent expense on a credit card anyway. A true emergency is something that is unexpected, urgent and necessary. That could be a job loss, a medical expense of an needed time sensitive repair. If you already knew about a bill that was coming your way, that does not count.
The information on this site is provided as a general resource and does not constitute legal, tax, or financial advice.