Savings Tips / Budgeting

Why You Need An Emergency Fund And How To Start One

Words by Abbie Dyer on Jan 25, 2023 4:34:10 PM

A surprise car repair. A furnace that breaks in the middle of winter. An illness or accident that requires a trip to the doctor. Sometimes life likes to throw you a curveball. And while you can’t predict every obstacle that’ll be placed in front of you, you can prepare for it with an emergency fund. 

An emergency fund is a savings account where money is set aside specifically for unexpected expenses. And with 64 percent of Americans living paycheck-to-paycheck1, it’s more important than ever to have a savings cushion to help you recover from emergencies. And stay on track with your other financial goals.

Why do I need an emergency fund?

Survey results published in the latest Report on the Economic Well-Being of U.S. Households (May 2021-May 2022) revealed that 32 percent of adults would not be able to cover an unexpected expense of $400 with cash, savings, or a credit card paid off at the next statement.2 When asked how they would cover the expense, the top answer that the respondents shared is that they’d put the cost on a credit card and pay the cost off over time. Other answers included borrowing money from family or friends, selling something, getting a loan, or simply having no other way to cover the cost.

The interest rate and fees on a credit card or other alternative payment method can quickly inflate the cost of an emergency. And having another bill or monthly payment to worry about later can impact your monthly budget.

Having an emergency fund can give you peace of mind and help you feel more confident with the knowledge that you have a plan in place in case something unexpected happens. And this fund can help you stay on track with your other savings goals.

How can I start my emergency fund?

Building or establishing your emergency fund will take time, and it’s important to stay positive and motivated throughout this journey. Remember, the money you save now will help you in the future. Start your emergency fund in three easy steps.

Review your budget. Take a snapshot of where you’re at today and review your current spending habits and expenses. Look for ways to make changes. 

Break down your goal. Trying to save $1,000 can feel overwhelming. Instead, focus on how much you can save each day or each week to reach your goal.

Automate your savings. Set up an automatic transfer in Online Banking between your accounts so you won’t have to remember when to transfer money. Tip: Set up your transfer on the same day your paycheck is deposited.

How much should be in my emergency fund?

Most experts agree that you should have three to six months of expenses saved for a healthy emergency fund, so the specific amount you need to save will be unique to you and your situation. If this feels unattainable, start by trying to save just $1,000. Once you've reached this goal, work toward building your nest egg of three to six months of expenses.

Expenses that are essential costs include rent/mortgage payments, utilities, food, medication, gas, tax payments, loan payments, and insurance payments. Add up these monthly expenses and multiply by three to determine how much you should have in your emergency fund.

Items like clothing, entertainment subscriptions, gym memberships, travel, or dining out are non-essential costs that should not come out of your emergency fund. You should factor these expenses into your monthly budget. Put these non-essentials on pause if you no longer have an income and are relying on your emergency fund to stay afloat.

Where should I keep my emergency fund?

Save your emergency fund in a place that’s easy to access if, and when, you need it. Consider putting the money in an account that earns interest on the balance so you can save a little more too. A few options include:

Aspire Savings: In this new, flexible savings account, you'll earn an elevated rate on the first $1,000 in the account. After that, the tiered rate continues to support your savings goals so you can grow your savings a little faster.

Special Savings: It’s a good idea to keep your emergency fund separate from your regular savings, and that’s easy to do in this account with no minimum balance and no monthly service fees.

Membership Savings: Every Lake Trust member has a Membership Savings account, as a five-dollar deposit is required in this account to join us as a member. Since you already have this account, consider using it for your emergency fund. Just note that you need to keep the minimum balance of five dollars in this account.

What’s considered an “emergency”?

The definition of an emergency will change from person to person, so it’s important to set boundaries for yourself. When considering whether an expense is an emergency, ask yourself these questions:

  • Can I go without this thing/expense?
  • Is this expense truly a need?
  • Will using my emergency fund for this cost help me meet my basic needs (housing, food, utilities, a vehicle, etc.)?

Generally, an emergency is an unexpected expense that you didn’t plan for in your monthly budget. However, not every unexpected expense can, or should, be considered an emergency. For example, let’s say your friend just texted you that she found a great deal on tickets to a concert on Friday night. Though you didn’t plan for this expense in your monthly budget, it’s not an emergency either. If you don’t have the funds in your regular savings, it might be a good idea to pass on the event.

How can Lake Trust help me?

We’re here to help you through every step of your financial journey. Our Member Experience Associates can help you reach your goals by providing guidance on the best products and services for you and your specific situation. Visit any branch, call us at 888.267.7200, or start a secure chat by logging in to Online Banking.

While you’re in Online Banking, check out the free budgeting tool available in your account. Or download our budgeting worksheet.

You have the power to reach your goals. Achieve your dreams. And enhance your financial wellbeing. All it takes is one step forward to get started.

SEE ALSO: 9+ Practical Tips To Adjust Your Budget For Inflation How To Create (And Keep) A Budget


1Harzog, B. (2022, June 8). How Many Americans Are Living Paycheck to Paycheck? U.S. News. Retrieved from


2Federal Reserve. (2022, August 22). Report On The Economic Well-Being Of U.S. Households In 2021-May 2022. Retrieved from


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