How To Build An Emergency Fund For The First Time

by Hank Coleman

How To Build An Emergency Fund For The First TimeDo you have an emergency fund? Do you know how to build an emergency fund? What’s holding you back?

Have you ever tried to get out of debt? I mean really tried. It is incredibly hard. Many people find themselves trying and slipping back on their old ways.

You relapse for many reasons such as not changing your habits that got you into debt in the first place and having to go back to your credit cards when emergencies and Murphy crops back up in your life.

Having a $1,000 emergency fund in place before you start to tackle your debt will help you from having to go back to your credit cards for a bailout. When a true emergency comes up, and we all know they will, you should have a buffer of cash sitting readily available simply in a savings account earning next to nothing in interest at your disposal.

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How To Build An Emergency Fund

$1,000 Covers 99% Of True Emergencies

Is a $1,000 emergency fund big enough to replace the transmission in your car? Is it big enough to foot the hospital bills after an extended stay? No, $1,000 will not be enough to pay for these big items, but it will be perfect for 99% of all the emergencies that you will face while starting out paying off your debt with The Total Money Makeover.

Having a $1,000 emergency fund is Dave Ramsey’s Baby Step 1. It’s the first thing you should do before you even start tackling repaying your debt.

Think back to all the emergencies that you have had or the things that you have needed to put on your credit card. Very few of them ever cost more than $1,000. One of the biggest tricks though is truly understanding what constitutes an emergency.

Far too many of us think that everything is an emergency. We are not honest with ourselves, and that is one of the reasons that we are in debt.

Do not cheat and use your $1,000 to fund vacations, minor things that can wait until you are out of debt, things that can be saved for and paid with cash, and others.

What Happens If You Have A Large Emergency?

So, what happens if you have an emergency that costs more than $1,000? While these are very rare when you honestly look at events, large emergencies may happen. Car engines, transmissions, extended hospital stays, and the like can wreck havoc on any budget and emergency fund.

You may still find yourself with other options rather than going back into credit card debt to handle these situations. You may not like the alternative that you are forced into choosing such as taking public transportation instead of buying a new car.

In many cases, hospitals can help you set up a payment plan to allow you to pay for large uninsured procedures over time. These payments would be added to your debt to be tackled in baby step two with your debt snowball.

There are options out there for the large infrequent events that challenge your $1,000 emergency fund. The key is not to slip back and relapse into a life that you were living which found you in debt in the first place.

Do you have an emergency fund? Do you know how to build an emergency fund? What’s holding you back?

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]

Hank Coleman has written 582 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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{ 4 comments… read them below or add one }

John S @ Frugal Rules

Good post. I agree that starting small, even with a $1,000 E-Fund is a great place to start. I’ve read before that even having as little as a $500 E-Fund is a great thing to have. When you think about it, having even that $1,000 will cover most things that might constitute an emergency plus give you some peace of mind.


Money Beagle

Good points though a car repair that exceeds $1,000 is not a stretch if it involves the engine or the transmission.


Brent Pittman

That $1000 gives you a quick success. I do advocate a slightly larger 2-3K starter emergency fund for those on an irregular income.


Paula @ Afford Anything

I’d agree that $1000 is a good “just in case” cushion to keep around. I’d also argue that, ideally, you should have a “car repairs fund” (separate from your emergency fund) that’s earmarked to take care of maintenance/repair costs. Ditto for a “home repairs fund.”


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