What’s an emergency fund?

An emergency fund is an amount of money set aside in a dedicated savings account to help provide a financial safety net for life’s unexpected challenges. Common emergencies like unexpected medical bills, car troubles, or job loss can be overwhelming—but with an emergency fund, you can face these challenges with peace of mind.

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Your emergency fund can help protect you from two types of financial emergencies:

Spending shocks are unplanned expenses like a broken windshield or a root canal. Saving enough to cover at least half a month’s worth of living expenses can help you prepare for potential spending shocks.

Income shocks are the unplanned loss of income. While these events may happen less frequently, they can be a significant setback to your financial plan. Over time, you should aim to build three to six months' worth of living expenses in your emergency fund to prepare for potential income shocks.

Simple steps to build an emergency fund

To get started, it’s important to understand the basics of calculating your monthly expenses. These can be broken down into fixed expenses, like rent or mortgage payments, and variable expenses, such as groceries or entertainment. Fixed expenses are consistent each month, while variable expenses can fluctuate. Calculating both types will help you determine your total monthly spending and set realistic savings goals. For a more detailed breakdown and to enter your specific expenses, use our expense worksheet. Simply input your monthly expenses for each category and select “calculate” to generate your total. If you already know what you spend each month, skip ahead to step two to determine your savings goals.

Whether it’s a spending shock or an income shock, these types of emergencies can be costly and overwhelming. The right amount to save is different for everyone.

  • For a spending shock aim to save at least half of your monthly expenses, as calculated in step one.
  • For an income shock aim to save three-six months’ worth of your expenses.

Use our equations to calculate savings goals that are specific to your needs.

Spending shock  =  your monthly expenses calculated in step one  ÷  two (half of your monthly expenses)

Income shock (three months)  =  your monthly expenses calculated in step one  ×  three

Income shock (six months)  =  your monthly expenses calculated in step one  ×  six

Now that you’ve assessed your monthly expenses in step one and determined how much you’d need to save for emergencies in step two, it’s time to make a plan to build savings into your budget. Saving regularly can be tough, but it’s important. Whether you’re dealing with a large, unexpected bill or a job loss, these situations can be stressful and expensive. Debt can make it even harder to save, so it’s a good idea to address it as part of your plan. Check out our resources for tips on saving more, cutting back on unnecessary spending, and managing debt effectively.

The sooner you start saving, the more time you have to benefit from compounding. Compounding is when the money you save grows over time—not just from earning interest, but also from other types of earnings depending on where you put your money. For example, some savings accounts pay you interest, which is money the bank gives you for keeping your money there. If you invest in things like stocks, your money might grow if the value of those investments goes up (this is called capital appreciation), or you might receive small payments from the company (called dividends).

Over time, the money you earn from these sources can also start earning more, which helps your total savings grow faster. Keep in mind, if you have many years until retirement, that’s a long-term goal. If you’re planning to buy a home in five years, that’s a short-term goal. The longer your time frame, the more time your savings have to grow through the power of compounding, which can bring you peace of mind later.

Explore more resources to secure your financial future

Dive deeper into building and maintaining your emergency fund with our educational articles. Whether you’re just starting out or looking to improve your savings strategy, we’re here to help. Use our tools and calculators, like the expenses worksheet, to get a clearer picture of your finances and make informed decisions.

Starter path

Emergency fund: Why you need one

Emergency fund: Why you need one

An emergency fund can help you deal with life's unexpected events. Learn how much you should save and where to keep your emergency savings.

Avoid these 5 ways to pay for emergencies

Avoid these 5 ways to pay for emergencies

When you need the money fast, you might be able to come up with several ways to get it. But they may not be the smartest solutions.

10 ways to save more money

10 ways to save more money

How to manage debt: tips to improve financial wellness

How to manage debt: tips to improve financial wellness

Struggling with debt? Learn how to manage debt with practical tips and strategies. Create a plan, organize your finances, and improve your financial wellness.

Accelerated path

How to get the most from your cash

How to get the most from your cash

Explore how much cash you should maintain in your portfolio. Learn how savings selection could affect your investment outcomes.

What are cash investments?

What are cash investments?

Cash investments are readily available short-term financial instruments. They have high liquidity, minimal market risk, and a short maturity period—usually less than 3 months.

What is a cash management account?

What is a cash management account?

What are money market funds and how do they work?

What are money market funds and how do they work?

Money market funds can give you the opportunity to get a better return on your cash, including your emergency fund, money sitting in a savings account, or a spending fund.

Certificates of deposit (CDs)

Certificates of deposit (CDs)

CDs are deposit obligations issued by commercial banks to raise funds for their business activities. Investors lock in the market interest rate at the time of purchase, and the rate is usually fixed for the term of the CD. Vanguard Brokerage imposes a $1,000 minimum for CDs purchased through Vanguard Brokerage, with $1,000 increments thereafter.

A framework for considering cash in your portfolio

A framework for considering cash in your portfolio

Our framework for cash investing takes into account risk tolerance, investment horizon, and funding levels.

Tools & Calculators

Expenses worksheet
Use this calculator to create a realistic retirement budget that includes basic and discretionary expenses.

You’re ready to build your emergency fund

Great work! You’re ready to build your emergency fund. Even a small amount set aside in your emergency fund now can help bring you peace of mind and financial security for the future.

What you’ve learned:

  • What an emergency fund is
  • The difference between spending shocks and income shocks
  • How to calculate your personalized savings goals
  • Ways to budget and commit to your goals
  • The importance of liquidity when choosing an account
  • The difference between cash management accounts, CDs, and money market funds

Why choose Vanguard to hold your emergency savings?

A home for your emergency savings

A strong emergency fund starts with a secure, reliable place to grow your savings. At Vanguard, we help keep your money accessible–so you’re ready if life doesn’t go as planned.



Ready when you need it–flexible if you don’t

Your emergency fund is built for the unexpected. But if life stays steady, it can also support short-term goals–like a wedding, move, or a major purchase.



50 years of putting investors first
For over five decades, we’ve focused on helping investors succeed. With clear goals, low costs, and a long-term mindset, we’re here to help you build financial confidence–starting with a strong foundation like your emergency fund.

Use what you’ve learned, to get started today.

All investing is subject to risk, including the possible loss of the money you invest. There may be other material differences between products that must be considered prior to investing.

The Vanguard Cash Plus Account is a brokerage account offered by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation, member FINRA and SIPC. Under the Sweep Program, Eligible Balances swept to Program Banks are not securities: They are not covered by SIPC but are eligible for FDIC insurance, subject to applicable limits. Money market funds held in the account are not guaranteed or insured by the FDIC but are securities eligible for SIPC coverage. See the Vanguard Bank Sweep Products Terms of Use (PDF) and Program Bank list (PDF) for more information.