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Cash in a jar for emergency funds.

Why It’s Important To Have Emergency Funds

You wouldn’t want to get caught in a rainstorm without an umbrella, and you definitely wouldn’t want to be faced with an unexpected expense you can’t afford to pay. This is why it’s important to have emergency funds.

Our guide will explain the ins and outs of emergency funds, what they should be used for, and how to set one up. We’ll also provide alternatives for what to do when you’re faced with an expense you aren’t prepared for.

Emergency Funds Explained

Emergency funds are an amount of money saved and set aside for use during a financial emergency. These funds come from a person’s income and can be built up over time.

The idea of an emergency fund has existed for as long as civilization. The past economic crisis and food insecurity have emphasized the importance of these funds. The COVID-19 pandemic was a recent reminder of the importance of emergency funds.

Typically, an emergency fund has enough money to cover all expenses for at least one month. However, some people may only have a small emergency fund for emergency purchases that aren’t covered in their everyday banking account.  

In summary, emergency funds are used as a parachute during an unexpected and urgent financial expense.

What Can Emergency Funds Be Used For?

People have varying definitions of what constitutes an emergency. We can all agree on the typical emergencies that require urgent attention, such as acquiring food or shelter. Other items may be more controversial.

Emergency funds must be set aside for particular uses and nothing else. They should not be used for shopping, flash vacation deals, investing, or loaning out to others.

Here are what emergency funds should be used for.

Job Loss

The most important reason to have emergency funds is to supplement an unexpected job loss within your family unit. The loss of a salary or monthly wages would devastate most Americans in the 21st century.

On average, it takes Americans three months to find a new suitable position. Without emergency funds, you will either eat through your savings and assets or accumulate debt to stay above water during this time.

House Repairs

A sudden storm or accident can wreak havoc on one’s property. Your home can't be left unfixed. Housing repairs are deemed a financial emergency that should be addressed ASAP to ensure the safety and living standards of the residents.

Insurance companies may sometimes approve a claim for these repairs, but the waiting time seems endless. Emergency funds are a way to get you through these difficult scenarios with less worry and stress.

Appliance Maintenance

Large home appliances such as refrigerators, stoves/ovens, water heaters, and washers/dryers have a limited lifespan. Sometimes one may break sooner than you had anticipated, leaving you with spoiled food, limited cooking options, no hot water, or a lack of clean clothes. These large appliance repairs are also deemed financial emergencies and can be covered by an emergency fund.

Car Trouble

If you live in a suburban or rural area, a car is necessary to access your work, food, and other places of interest. Ignoring your car’s maintenance or an issue with your vehicle is setting yourself up for a bigger problem and bill down the line. Use your emergency funds if you must deal with an unexpected visit to the mechanic.

Illness or Death in the Family

Taking care of your health is of the utmost priority. A new medical treatment that is not covered by insurance has the highest ranking of emergencies. Insurance may not cover all costs, and deductibles can sometimes run in the thousands of dollars.

Sudden death in the family may also bring about funeral costs.

During these emotional times, the last thing you need to be worried about is how to pay the bill. Emergency funds are a source of comfort for these difficult situations.

Unplanned Travel Expenses

The last recommended use for emergency funds is for unplanned travel. This does not include travel for enjoyment, such as vacations, nor does it include business trips or conferences.

Unexpected emergency travel could be a flight to see a sick family member or to go to a funeral. It is something serious and urgent that requires your attention and presence immediately.  

Who Needs an Emergency Fund?

The short answer is everyone. Emergency funds are a source of help for times you don’t expect. Nevertheless, there are particular groups of people who may be more prone to face financial emergencies. 

Those in Debt

There are many discussions on whether you should use your emergency fund to pay your debt or not. Even though this is a personal choice, people with debt should consider leaving their emergency funds alone, so they don't have to take on more debt if an emergency arises.

Those on a Budget

Sticking to a budget is hard work, but it’s also rewarding. An emergency fund is vital to staying on task and meeting your financial needs. Without one, an unexpected expense could throw you off your budget and financial path.

One-Income Family Units

If your family unit’s only stream of income is through one job or if you’re an independent contractor, an emergency fund is a must. These individuals are precariously putting all of their eggs in one basket. This fund will provide a pillow to catch the eggs if the “job basket” disappears.

People Saving for a Goal

Similar to those people on a budget, an emergency fund will allow others to continue to work towards their financial goals, even if an unexpected financial hurdle comes their way.


If you rent your home, your landlord is responsible for major repairs. Homeowners have more responsibility and need an emergency fund to deal with home damage, appliance breakdowns, and more.

Those with Medical Issues

While health insurance can cover most major expenses, new treatments, and medicine can be privatized to require individual payment. Not only that, but an illness can cause job loss, too, thereby making this group of individuals the ones who may most need an emergency fund.

How Much To Have in Your Emergency Fund

Emergency funds range widely in their size. Generally, people begin with a fund that is enough to cover one of the smaller emergencies listed before, like car repairs or a new large appliance. Once you establish this emergency fund, we recommend continuing to grow it.

As a general rule of thumb, most financial advisors recommend having enough money to at least cover one month's worth of expenses should your income disappear. This means that if you experienced a sudden job loss, you could still pay for your necessities for the next 30 days.

As you start saving more of your income, an ideal emergency fund would cover three months’ worth of expenses. This is the ultimate goal for an emergency fund cushion.

Analyze Your Monthly Expenses

Before deciding how much you want to save in your emergency fund, you need to know how much you spend every month. To do this, you must sit down and analyze your monthly expenses. Most of us know the general amounts we spend on monthly bills, but you’d be surprised how many dollars slip through the cracks.

Try writing down every dollar you spend for one week, then one month, if possible. This means tracking every coffee, every gas fill-up, and every lunch out. You may be surprised at what you discover at the month's end.

Decide on the Necessities

After analyzing your spending, it’s time to reevaluate which expenses are necessary. If you lost your job tomorrow, would you still make that $7 coffee run in the morning? Hopefully not.

Eliminate these non-essential expenditures from your tracked expenses. The total you have left will include the things you truly need to get by. You will want to aim for this amount in your emergency fund. Once it’s established, you will want to change your goal and aim for 3x that amount.

How To Generate an Emergency Fund

If you don’t have an emergency fund yet, it’s time to start building one up. Wondering how? Whether you’re living paycheck to paycheck or spending where you don’t need to, one of these ways is sure to work for you.

Revisit Your Budget (or Create One)

If you don’t have a budget, it’s time to create one. Follow our expense tracking guidelines above to see exactly where you spend your money each month.

When you realize you’re spending $100 or more monthly on coffee, you may want to rethink whether the brand-name label is worth it. Many expenses can either be cut down, replaced, or eliminated with the right mindset and motivation.

Decide what you can live without and eliminate it from your monthly budget. Put that same money towards your emergency fund instead. Spend only what you planned for before the month began.

Your budget can always be adjusted in the future. You can temporarily eliminate certain expenses, such as eating out, and redirect the funds to an emergency fund. Once the fund is established, you can always go back to those expenses. Although, you may want to make them less frequent now that you know how much you can save by avoiding them!

Set Consistent Contributions

Now that you’ve set up a budget and know how much you can afford to put into your emergency fund, it’s time to start saving. Stick to this plan and make consistent contributions until your emergency fund goal is reached.

At a minimum, we suggest you continue with this method until you have at least one month’s worth of necessary expenses saved up.

Use “Free” Money

More than 1/3 of Americans spend their tax returns before they receive them. This is one example of spending “free money.” Any money you win, inherit, or gain without expecting it is what we call “free money.”

Even though it’s just as real as the dollars in your bank account, our minds trick us into thinking it’s extra spending money. The truth is that it could and should be money you save.

Any extra cent you get during your budgeting months should be an addition to your emergency fund. This will get you to your goal faster, and you’ll still stick to your budget.

Take on a Second, Part-Time Job

Some people are already on a budget and don’t have the possibility of cutting any more financial corners. While it may be challenging, an additional part-time job is a surefire way to get yourself out of the financial gutter.

Think of it as a temporary challenge; you will not keep this second job forever. With a few months of extra work, you can establish your emergency fund and eliminate potential worries about your future.

Keep It Separate and Accessible

Now that you’ve established where your emergency funds will come from, you must set up where they will be deposited.

You should keep the money for emergencies in a separate account from your regular checking account to ensure you don't take money out of it. We suggest a high-interest savings account, potentially at a separate online bank.

What To Do If You Don’t Have an Emergency Fund

Our guide provides excellent information on an emergency fund and how to establish one. While your path to a financial cushion may be underway, what should you do if you have to face a financial emergency without a fund today?

Simple Fast Loans is a fully-licensed financial services company with offices across the U.S., and we are here to help.

Simple Fast Loans offers installment loans to help those who need cash fast. We know how important it is for you to get your money when you need it. No matter your situation, our loans offer a helping hand during dire times.

Simple Fast Loans' Installment Loans

Simple Fast Loans' online installment loans can provide up to $3,000 in cash as quickly as the same day you apply. You can fill out the application online in a few easy steps, and you will find out immediately if you get the loan.

Once you receive your loan amount, you’ll have all the details you need about the monthly installments required to repay your loan.

We will contact you if we have any questions about your application to make sure we are meeting all of your needs correctly.

What You Need To Apply to Simple Fast Loans

You’ll need to access our site online to apply for one of our loans. Make sure you have your government-issued ID and checking account information ready. You should be 18 years of age or older before applying for one of our loans.

On our homepage, select the loan you would like to apply for. Complete the application in as little as a few minutes. We will contact you through your indicated phone number if we have any other questions.

Once your application is submitted, you will receive a decision almost instantly. You will then be informed of the next step in securing your funds. Once they are deposited into your account, you can use them to take control of your financial emergencies with strength and dignity.

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