If you follow me over on YouTube, you may have noticed I recently posted about the emergency we had: an emergency vet visit and pet surgery. It was a great reminder of why we have an emergency fund and why it is so important.

Unfortunately we aren’t sure what happened (possibly a fight between the dogs), Hank showed up for food with a bloody ear that was missing a chunk. After a bloody cleanup and slight panic, we ended up taking him to the vet to get fixed up. We assumed the vet would just glue his ear up but because the tear didn’t match up he had to have a surgery that day to fix the problem.

The vet gave us a quote beforehand and though it was a large unexpected expense of over $500, we didn’t have to hesitate or scramble to come up with the money. We simply said “do it” and moved the money over to pay for the expense.

Having an emergency fund saved us a lot of stress and worry in this situation.

I firmly believe building an emergency fund is one of the most important financial things you can do. It’s a big part of adulting the right way.

What is an emergency fund?

An emergency fund is an account where you set aside money for unforeseen expenses that aren’t part of your regular budget. It’s for things like your dog’s emergency surgery, an unpredictable medical expense, a car repair, or your normal expenses in case of a job loss. Most experts recommend you save 3 to 6 month’s of expenses in this emergency fund account.

Having an emergency fund gives you a buffer to weather life’s storms and insures you will be able to handle life’s unexpected expenses.

Emergency funds will give you peace of mind. You rest a little easier knowing that you can cover a major expense that surprises you. It gets you away from the paycheck to paycheck cycle where you fear any unexpected expense.

You should always keep your emergency fund separate from your checking account or the account where you pay bills. It’s not meant to be the buffer in your checking account. Most people find keeping the emergency fund separate helps you avoid the temptation to spend it.

Keeping your emergency fund in a separate checking account or in a savings account you can access quickly is a common option and many people choose to use a money market account. Some people advocate for investing emergency fund money to beat inflation, but personally I like to keep this money in savings.

What do emergency funds cover?

Emergency funds are great to have but should only be used for real emergencies. They should not be used on expected expenses that you didn’t budget for like vacations or Christmas presents.

Emergency funds can and should cover things like car repairs, medical expenses, and home repairs (not cosmetic home improvements). They should be there to keep you afloat in case you lose your job and have to find another.

How big should your emergency fund be?

Like I mentioned, emergency funds should be between 3 to 6 months of your expenses. It should be the multiple of your bare minimum expenses since you would cut back during a job loss period. For example, it would be the amount to cover your rent, utilities, debt payments, and food, but wouldn’t cover things like eating out or clothing.

It’s a lot of money and can take a while to save up (we are still working on building our emergency fund) thousands of dollars. Most people save up a little at a time until they hit a comfortable amount in their emergency fund.

Ideally, you should make saving up your emergency fund a priority and do it as quickly as possible. This will help you avoid any emergencies that put you back into debt.

We are so glad we made saving up an emergency fund a priority this year. It was one of our top financial goals for the year and we are well on our way to accomplishing it. Thankfully we started this process before we needed it and our dog Hank was well taken care of because of it!