When it comes to financing, you want to feel secure enough that if something unexpected crops up, you have the money to deal with it, without taking too much of a hit. 

An emergency fund, also known as a rainy day fund, is not necessarily for your house, a holiday, or car finance, but is to cover real emergencies, such as an accident, or your car breaks down, or you lose your job. 

A financial buffer, an emergency fund gives you breathing room in the case of an unexpected financial expense. Here are the 10 commandments of building an emergency fund. 

Thou shalt always be prepared

When it comes to savings, it can be a good idea to have a few different savings accounts, each with a different purpose. You may have a regular savings account, for planned expenses, such as home, holidays, car finance, etc, but you also need one solely dedicated for emergencies. 

An emergency can happen at any time, so you want to ensure you’re prepared to handle anything that comes your way. Saving for the unexpected is a good way to future proof your finances. 

The money may need to be accessed quickly, so while you should not touch it for any other reason when an emergency does occur, it needs to be easily and quickly accessible. 

Thou shalt set a goal

Even though an emergency fund is not for a particular expense, you still want to set yourself a saving goal. 

Consider your budget and what amount will provide you with the most peace of mind. A good rule of thumb is to have enough to cover at least 3-6 months worth of living expenses, though the amount you need in your emergency fund may vary from person to person, and can depend on numerous factors such as your current expenses and lifestyle. 

Review your current income and calculate how much you spend on essential expenses each month, including mortgage or rent, groceries, bills, and any regular fees. Then create a budget to reach the goal of how much you want to save and set a target date. 

Thou shalt set a monthly budget

You have your overall goal, but you may also want to set monthly goals to keep you on track. This can help prevent you from being tempted to skip putting money towards your emergency fund, or from dipping into it. 

If your financial situation changes you may also want to adjust your monthly budget. This could be if you’ve had to use the emergency fund and need to rebuild it, you’ve reached your goal, or perhaps your income has increased so you can afford to save more. 

Thou shalt not touch

As mentioned, an emergency fund is for true emergencies only! It is not to be used for buying a designer handbag or going on holiday. 

You shouldn’t touch this money for anything less than an emergency. Set restrictions on what this money will be used for to ensure you always have an emergency fund when you need it. 

You may not want to use this for your car finance, though if an emergency occurs that requires you to use your emergency fund to keep up with your loan payments, you may want to make an allowance for this situation, to avoid defaulting on your car loan. 

Thou shalt not rush

An emergency fund is something that takes time to grow. While you may want to save up your goal amount as soon as possible, not everyone’s budget allows this. 

An emergency fund is something you can grow gradually over time. Even if you can only save a little each month, any amount will help. Just make sure to continue to add to it regularly. 

Thou shalt set up automatic payments

The amount you transfer to your emergency fund each month will depend on your budget. Once you have worked out how much you can afford to save each month, set up an automatic payment into your emergency fund. 

Setting up direct deposits into this fund each month means you don’t have to think about it (less chance of you forgetting), but your fund will continue to grow. 

Thou shalt always rebuild the emergency fund

If something happens for which you need to use your emergency fund, it’s important to start rebuilding it again. 

Emergencies are not a one-time thing. Unfortunately, they happen numerous times throughout our lives and you never know what could happen down the road, so always rebuild your emergency fund after you’ve used it. 

Thou shalt use a high-interest saving account

Your emergency fund should be its own account, separate from any other savings to remove the temptation to dip into it.  

When setting up the account, choosing a high-interest account will help give your savings an additional boost. Also look for one with minimal, or no fees. 

Thou shalt give it a boost

If you’re finding money a bit tight to get an emergency fund going or you want to reach your goal sooner, look for anything around the home you may be able to sell, and then put that money straight into your emergency fund to give it a boost. 

Another good opportunity to boost your emergency fund is with your tax refund or a salary bonus. 

Thou shalt keep adding to it

Even if you reach the savings goal you set, there’s no harm in continually adding to your emergency fund. Continuing to grow this fund, just means you’re prepared for anything. 

Once you’ve reached your goal, however, you may choose to slightly decrease the amount you put into it each month depending on your budget, and if you want to prioritise other expenses such as paying off your car loan, or saving for a house.