An emergency fund is a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common emergency examples include unemployment, car repairs, home repairs or medical bills.

In general, emergency savings can be used for large or small unplanned bills or payments that are not part of your routine monthly expenses and spending OR for all normal monthly expenses for a period of time.

Why do I need it?

Without savings, a financial shock—even minor—could set you back, and if it turns into debt, it can potentially have a lasting impact.

Research suggests that individuals who struggle to recover from a financial shock have less savings to help protect against a future emergency. They may rely on credit cards or loans, which can lead to debt that’s generally harder to pay off. They may also pull from other savings, like retirement funds, to cover these costs.

How much do I need in it?

The amount you need to have in an emergency savings fund depends on your situation. Think about the most common kind of unexpected expenses you’ve had in the past and how much they cost. This may help you set a goal for how much you want to have set aside. The worst-case scenario is often the amount of money you would need to cover all family expenses for the amount of time it would take you to get another job if for some reason your present employment ends. For some people, this might be a month; for others it might be as much as six months.

If you’re living paycheck to paycheck or don’t get paid the same amount each week or month, putting any money aside can feel difficult. Even a small amount can provide some financial security.

Building a savings of any size is easier when you’re able to consistently put money away. It’s one of the fastest ways to see it grow. If you’re not in a regular practice of saving, there are a few key principles to creating and sticking to a savings habit:

Set a goal. Establishing your emergency fund is an achievable goal that helps you stay on track, especially when you’re initially getting started.

Create a system for making consistent contributions. There are a number of different ways to save, and as you’ll read below, setting up automatic recurring transfers is often one of the easiest. It may also be that you put a specific amount of cash aside each day, week, or payday period. Aim to make it a specific amount, and if you can occasionally afford to do more, you’ll watch your savings grow even faster.

Regularly monitor your progress. Find a way to regularly check your savings. Whether it’s an automatic notification of your account balance or writing down a running total of your contributions, finding a way to watch your progress can offer gratification and encouragement to keep going.

You may want to keep your Emergency Fund savings in a separate savings or one or three-month deposit account without an ATM card, so you’re not tempted to spend it.