4 Big Emergency Fund Mistakes You Can't Afford to Make (2024)

Emergencies can happen to anyone, at any time. Some emergencies are major ones, and others are more minor blips -- but most are going to cost you at least some money. And when faced with unexpected expenses, even a minor problem could turn into a major financial disaster if you're unprepared.

That's why it's so important to avoid these four big emergency fund mistakes.

1. Not having an emergency fund

The biggest emergency fund mistake is not having one at all. Without an emergency fund, you're left unprotected from even the most minor financial disaster. You could be forced to scramble to borrow -- sometimes at a high rate. And, in some cases, credit may not be available or you may not get a loan in time to deal with your emergency.

Even if you can cover your emergency with a credit card or other loan, this could also affect your financial stability going forward as you're now committing future income to dealing with past problems.

To avoid this, aim to put some money into a high-yield savings account that you can use for emergency expenses. You can save a little from each paycheck by prioritizing emergency savings in your budget, or you can use a windfall such as a tax return or stimulus check payment to start your emergency fund. It may even pay to put in a few hours of overtime or work a side gig for a brief time to build up an emergency fund quickly so you're protected in case of calamities.

2. Spending the money on non-emergencies

Once you've worked hard to save up an emergency fund, it's imperative you leave the money in it alone until a true emergency arises. Unfortunately, it may be tempting to tap into that fund for things you want but don't really need.

Unless you'll suffer serious financial or personal consequences from not withdrawing money from your emergency fund, taking cash out of the account would be a big error. Avoid doing it by simply saying no to expenses that you aren't prepared to cover. Or have a separate savings account for unexpected fun purchases that you may want to make, such as paying to attend a wedding after a last minute invite or splurging when an item you've been coveting goes on sale.

3. Not maintaining enough money in your emergency fund

An emergency fund that's far too small is almost as bad as not having one at all. After all, when you experience a major emergency, such as a job loss or a serious medical issue, that's exactly the type of situation where you'll need a lot of money and it may be difficult to borrow it.

Ideally, your emergency fund should have enough cash in it to cover three to six months of living expenses. While you can -- and should -- start small and build at least some emergency savings if you can't hit that target right away, try to work up to it as quickly as possible. You can prioritize emergency savings by making it a line item in your budget and putting money into that account first before allocating spare cash to spending. And, as mentioned above, you might want to consider increasing your earnings temporarily to flesh out your emergency fund.

4. Investing your emergency fund money

Your emergency fund should be in a high-yield savings account where it's easily accessible. You don't want to invest it in stocks, bonds, CDs, or any other investment where there's a risk of loss or it would be difficult to get the money out. Otherwise, you may not be able to access it when you need it most.

Don't put your finances at risk with these emergency fund mistakes

By avoiding these emergency fund mistakes, you can make sure you're prepared when you're faced with unexpected calamities. You'll be very glad you made the effort to build a hefty emergency savings account when you don't have to worry about money during a time you're already coping with a crisis.