Emergency Fund 101: How To Save For a Rainy Day | YNAB (2024)

Ahhh, the emergency fund.

It’s something you’ve probably heard about whether you’re just starting out on your personal finance journey, or are a budgeting pro. But how much should you be saving? What is considered a true “emergency”? Do you even need an emergency fund? Let's find out.

What is an emergency fund?

An emergency fund is a financial safety net that can offset or cover the expense of unexpected events.

Let’s start by defining what a financial emergency is:

A financial emergency is something unexpected that happens that has not been planned for elsewhere in the budget and needs to be dealt with immediately.

Job loss, home repairs, car repairs, medical bills, pet health emergencies, and more—these are all unplanned expenses that can pop up at any time to put a serious damper on your sense of well-being.

(Things like Amazon Prime Day sales don’t officially qualify as a financial emergency, sorry.)

When urgent unexpected expenses pop up, it’s a huge relief to have emergency savings in the bank so that you can avoid going into credit card debt, or even worse, find yourself unable to solve whatever issue has thrown a monkey wrench into your life. The sense of financial security an emergency fund offers can lead to a more pleasant and peaceful life all around.

How do I start an emergency fund?

When I first started budgeting, I made a goal of saving a $1000 emergency fund. It was advice I’d heard often and it seemed sound. It took about a year, but eventually I got there.

It can be difficult to come up with a savings plan when it seems like you don’t have enough money in your bank account to handle daily life. Small windfalls like tax refunds, work bonuses, three paycheck months (if paid bi-weekly), or money from side hustles, garage sales, or things sold on Facebook Marketplace are all great opportunities to funnel a little money into your rainy day fund.

The amount of money you set for your savings goal depends on your personal circ*mstances and budgeting style. Maybe you start with a $1000 emergency fund and work your way up to 3 months’ worth of living expenses. However, if you include variable expenses (aka True Expenses in YNAB lingo), you might magically find yourself having less “emergencies” to fund.

As I began building my emergency fund, I also started saving for my True Expenses. I set aside manageable amounts of money each month for car repairs, the holidays, annual bills, and all of the other non-monthly expenses that everyone deals with but still feel unexpected when they pop up sporadically.

Learn more about how to budget variable expenses in YNAB.

Time marched on. My dedicated emergency fund dollars sat there. And sat there. And sat there.

• They sat there and watched my car suffer a $750 repair. They did nothing.
• They sat there when my dog Charlie got into something he shouldn’t have and needed a quick (and expensive) trip to the vet.
• They sat there when I registered my car at the town hall, a once a year expense.

All these things would have been emergencies before I started budgeting. They were unexpected and not planned for and needed to be dealt with immediately.

But they weren’t emergencies now, because I had specifically budgeted for them gradually throughout the year. The longer I budgeted, the fewer emergencies I had. Huh. How about that?

Do I really need an emergency fund?

So does budgeting for True Expenses mean you shouldn’t have an emergency fund? Not at all. Things will happen that you cannot anticipate. Having money around for those moments is just good sense.

So what would I define as an emergency now?

Well, there was that time the sewer line to the septic tank was blocked and water was no longer leaving the house.

It certainly was unexpected, but I have a category for house maintenance. Things break on houses. Did it belong there? You could definitely make an argument for that. I could have categorized it that way. So why did I categorize it as an emergency?

Because it felt like one. Seriously, I couldn’t get a plumber to the house fast enough.

Then there was a time I wanted to help fly a family member home quickly. It was unexpected and not planned anywhere in the budget. And adding a category for “Helping a family member fly home quickly” felt unnecessary.

There was also the time we had a very severe fall storm that knocked out the power for four days. I couldn’t cook and it was the end of the month so my dining out category was drained. I could have shuffled some money around between budget categories, but it was nice to not have to.

So go ahead and start saving for that emergency fund. But as you save for True Expenses, I’m betting you won’t need that emergency fund as much as you thought...and that’s a significant step towards living a life with less financial stress.

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