How To Build An Emergency Fund: A 101 Guide

Updated: June 4, 2021
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Setting up an emergency fund is the most important first step when it comes to getting your financial life in order. Having an emergency fund will give you the security of knowing you have money in reserve to cover unforeseen costs. It means you won’t have to rely on credit to pay for the unexpected. In a bigger sense, it is a critical early step on the way to true financial freedom.

Most personal finance experts recommend that a person builds an emergency fund of between three to six months of expenses. Here’s the problem: A huge number of people have no savings at all. Only 18% of Americans say they could live off their savings for six months. That’s an awful lot of people with not much of an emergency fund.

Given how crucial an emergency fund is, we are going to walk you through exactly how to start one — and give you the ultimate hack to build wealth over time when you start one.

Editor’s note: Building an emergency fund is the financial step to take after you have paid off high-interest debt like credit cards. That being said, a lot of our tips for building an emergency fund work just as well for throwing money at debt, so take notes!

1. Open An Account That Will Help You Build Wealth

It’s really important to open a separate account for your emergency fund so you don’t end up just mindlessly spending any money you save. Here’s the thing, you don’t want to open just any savings account to start to build your emergency fund, that money isn’t going to grow — it’s just going to sit there.

We recommend setting up a high yield account. Tellus Boost is a great example — a cash management account that provides a daily compounding interest rate of 3% — unheard of for any checking account, let alone traditional savings accounts.

The daily compounding 3% APY that the Tellus Boost account offers is 50 times the national average for savings accounts

On top of that stellar rate, there are opportunities to boost that APY up to 6% daily, by doing simple things like logging into your account daily, completing fun quizzes, and referring friends.

Right now, Tellus is offering to double your interest for a week for each friend that you refer. Simple math — that brings your Tellus Boost APY up to 6%. Plus, Tellus Boost pays out daily and compounds daily, making it even more powerful.

Just to reiterate why choosing Tellus over a traditional savings account is going to make such a big difference: That daily compound interest works in your favor to help you grow your emergency fund quickly. You earn interest on your interest — every single day. Compound interest is your friend — and Tellus Boost helps you maximize it. You will quickly see it having an impact.

To open and maintain a Tellus Boost account, you have to have a minimum balance of $200. Other than that there are no other requirements and there are no fees. This is a no-brainer when it comes to getting an emergency fund started.

2. Once You’ve Opened An Account For Your Emergency Fund Do A Money Audit

Start by writing down your current bank balance, your credit card balances, any loans you have, and how much you will initially be able to deposit into your emergency fund. Most people avoid this step, but it will tell you where you are starting from, and help get you where you are going — a fully-funded emergency fund!

3. Cut Expenses Where You Can So You Can Save More

Besides curbing any temptation to splurge, you should also shop around to see what expenses you can reduce, such as home or auto insurance. Next, consider cutting the cord on expensive cable or satellite services and choosing lower-cost streaming choices.

4. Create A Real Budget That You Stick To

Your next step will be to create a budget that covers all your expected purchase decisions. Your budget should consist of monthly expenses like rent or mortgage, utilities, car payments, credit card bills, and more. You will also need to account for other costs, such as grocery shopping, entertainment, clothes, travel, and gifts. Review previous bank and credit card statements to start filling in your spending patterns. This will show you where you have exceeded your income or where you have spent less.

Whether your temptation is shoes, concerts, daily coffees, or expensive lunches, this is the time to reel in your spending and put that money towards your emergency fund.

5. Snowball Your Savings

Remember, a major purpose of having an emergency fund is so you can avoid running up those credit card bills when an unexpected expense comes along. After reducing costs and getting a solid budget in order, whatever money you have left can and should be directed towards your emergency fund. Focus all of your extra savings onto this single goal and you’ll be well on your way.

6. Sit Back And Enjoy Watching Your Emergency Fund Grow Over Time

How’s it going to feel every time you log into your Tellus Boost account and you see your emergency fund growing both because of the interest that Tellus is paying you and the money you have been able to systematically contribute? Pretty freaking good. Watching your emergency fund grow with a Tellus Boost account is especially gratifying because you’ll be able to see real-time updates to the second on account activity, and every single day you’ll be receiving that interest payout. The next day you’ll get interest on top of your interest – compounding is like magic and it feels great!

Once you have an emergency fund that can support at least six months of your living expenses, it will be a great time to revisit your budget. You’ll be ready for the next step of your financial journey and it will be time to think about how you balance your savings with your investments. Be proud of yourself. You are one step closer to achieving financial freedom.

Sign up for a Tellus Boost account today and start your emergency fund.

Illustration: The Money Manual

*Tellus is not a bank. Tellus is not FDIC insured. Other terms and conditions may apply. Please see for additional details and disclosures.