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Make Building an Emergency Fund Your Top Goal for 2025

  • December 17, 2024

Looking back on 2024, did you experience financial surprises you weren’t expecting? Maybe your dog, Mr. Potato, needed to see an ophthalmologist located an hour away more than three times; yes, there are doggie eye doctors. Maybe that Potato used your new phone as a chew toy. Maybe Mr. Potato’s stomach issues started to require fancy food and regular checkups.

As we step into the new year, it’s the perfect time to set financial goals that can provide peace of mind and security, help take care of all your and Mr. Potato’s life moments and allow you to pay for those unexpected bills. One of the most important goals you can set is building an emergency fund. If you own a business, learn how much a business should save here.

What is an Emergency Fund?

An emergency fund is a stash of money set aside to cover unexpected expenses for you, Mr. Potato, and anyone else in your family. These could include medical emergencies, car repairs, home maintenance, or even sudden job loss. The idea is to have a financial cushion that prevents you from going into debt when life throws you a curveball. Also, the fund takes the stress away when the expenses occur.


Why You Should Have an Emergency Fund

Peace of Mind: Knowing you have a financial safety net can reduce stress and help you sleep better at night.

Avoid Debt: An emergency fund can prevent you from relying on credit cards or loans, which can lead to high-interest debt.

Financial Stability: It provides a buffer that allows you to handle unexpected expenses without disrupting your financial goals.

How Much Should You Save?

Financial experts typically recommend saving three to six months’ worth of living expenses. This amount provides a solid buffer to handle most emergencies. For example, if your monthly expenses are $4,000, aim to save between $12,000 and $24,000. If you’re just starting out, don’t be discouraged by these numbers. Even a small emergency fund of $500 to $1,000 can make a big difference.

Emergency Expenses

Although we’ve covered some of Potato’s unexpected pet expenses, an emergency fund can cover vet bills and other costs:

  • Medical Emergencies
  • Car Repairs
  • Home Repairs
  • Job Loss
  • Unexpected Travel
  • Legal Fees

Non-Emergency Expenses

Mr. Potato may enjoy a doggie spa day, but your emergency fund cannot pay for the spa day, his new outfit, or his photo session. Sorry, these expenses are not emergencies.

  • Throwing a party.
  • Taking a short vacation to recharge and de-stress.
  • Covering costs for a new hobby or interest that suddenly sparks your passion.
  • Snagging tickets to a must-see concert or event that you didn’t plan for.
  • Treating yourself to a spa day or a fancy dinner after a particularly tough week.
  • Paying for unexpected seasonal activities like skiing trips or summer festivals.

Get Started

Open either a savings or money market account that has zero or no fees.

  • Ensure you can access your funds quickly in an emergency.
  • Choose an FDIC-insured account
  • Look for accounts that offer competitive interest rates to help your money grow.

Creative Ways to Save and Build Your Emergency Fund

Building an emergency fund can take some time, depending on your goals. However, there are some fun ways to speed the process along:

  • Use a Swear Jar: If there are words or language you want to break the habit of using, start a swear jar and pay the jar $5 every time you say the unwanted word! If Potato uses your replacement phone as a new chew toy, be careful; the swear jar fees can get hefty.
  • Round-Up Savings: Use apps that round up your purchases to the nearest dollar and save the difference. It’s an effortless way to save small amounts that add up over time.
  • Automate Savings: Set up automatic transfers from your checking account to your savings account. Treat it like a bill you have to pay every month.
  • Cut Subscriptions: Review your subscriptions and cancel those you don’t use regularly.
    Redirect that money into your emergency fund.
  • Cash-Only Weekends: Challenge yourself to use only cash for a weekend. This can help you become more mindful of your spending and save the difference.
  • Participate in a Savings Challenge: Try the 52-week savings challenge, where you save an increasing amount each week. By the end of the year, you’ll have a nice sum saved up.
  • Freelance or Side Hustle: Use your skills to earn extra money through freelancing or a side hustle. Platforms like Upwork or Fiverr can help you find gigs.
  • Save Windfalls: Whenever you receive unexpected money, such as a tax refund, bonus, or gift, put a portion of it into your emergency fund.

Building an emergency fund is one of the best financial decisions you can make. It provides security, reduces stress, and helps you stay on track with your financial goals. Start small, stay consistent, and watch your savings grow. Here’s to a financially secure 2025!

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