Life is full of surprises—some more expensive than others. That’s where a contingency (emergency) fund comes in. It’s your financial safety net, giving you peace of mind and helping you avoid debt when the unexpected strikes. And yes, you can build one on any income—even if you’re starting small.
What Is A Contingency (Emergency) Fund?
A contingency fund is money set aside specifically for possible but unplanned expenses—like medical bills, car repairs, or sudden job loss. It’s not for vacations or sales at your favorite store.
How Much Should You Save?
A common recommendation is to save 3 to 6 months’ worth of living expenses. And by ‘living expenses’ we mean the necessities, not the ‘nice to have’ things like those streaming services and that weekly night out. As you plan your contingency fund, don’t forget to include insurance deductibles as well as every day necessary expenses like your rent/mortgage, insurance and debt payments, food, and maintenance for your vehicle, if you have one.
Steps to Build an Emergency Fund on Any Income
1. Set a Realistic Goal
Start small. Your first milestone might be $500, then $1,000. Break it into manageable chunks—every $10 or $20 counts. Also, set a timeline for your goal and a realistic way to achieve it. For example, write down that you want to achieve a fully-funded contingency fund in the next 18 months by contributing $20 per month and adding in that holiday bonus. Post it in a place you will see it often to remind you what you are working toward and keep you on track.
2. Make Saving Automatic
Set up automatic transfers from your checking account to a dedicated savings account. Treat it like a bill you pay yourself and add it as a line item on your budget.
3. Cut Unnecessary Expenses
Look for small, consistent savings. Can you eat out one less time a week? Cancel a subscription? Redirect those dollars to your contingency fund. If you don’t have a budget to help you here, start now.
4. Use Windfalls and Extra Income
Tax refunds, bonuses, birthday money—use part (or all) of it to give your fund a boost.
5. Track Your Progress
Seeing your fund grow is incredibly motivating. Use a savings tracker or app to visualize your progress. Alternatively, keep a sheet of paper with milestones on it somewhere you will see it often (like your refrigerator door) and color in the milestones as you reach them.
6. Keep It Separate (But Accessible)
Use a separate savings account so you’re not tempted to spend it, but make sure it’s accessible when you truly need it. High yield savings accounts and money market accounts are ideal, but you can also keep part of your fund in certificates of deposit or other short-term securities.
7. Stay Consistent
Even if it’s just $5 a week, consistency adds up. What matters most is building the habit.
The Bottom Line
You don’t need a high income to build a contingency fund—you need intention and consistency. Start where you are, use what you have, and commit to protecting your future.
How did you start your contingency (emergency) fund? Share your tips in the comments!