Dear SoFi: Do I Really Need an Emergency Fund?

Dear SoFi, my partner is stressed about the fact that we don’t have a nest egg for emergencies. We already have enough trouble making ends meet – how are we supposed to build an emergency fund?

About one in four Americans have no savings at all, and approximately 60% are uncomfortable with the amount of money they do have set aside for emergencies, according to a 2024 Bankrate survey. Your partner is not alone. This stress will be familiar to many people.

As will be the confusion about what to do about it. Roughly six in 10 Americans live paycheck to paycheck, according to a 2023 SurveyMonkey/CNBC survey. That can make it quite challenging to save for emergencies.

Still, one of life’s unexpected twists – a car problem, a medical expense, or a leaky roof – can put you deeper into the red quickly. And financing it on a high interest credit card can lead to snowballing debt.

There’s no question: Having an emergency fund will improve your life – financially and emotionally. So, let’s take a look at how to build one.

What is an emergency fund?

An emergency fund is an account you absolutely don’t touch unless there’s an emergency. Knowing you have money put aside to pay for unexpected expenses will give you peace of mind and greater financial stability.

How much should you save?

The general consensus is an emergency fund should hold enough to cover three to six months worth of expenses: About 90% of U.S. adults say they would need at least three months worth of cash to feel comfortable, according to the Bankrate survey. That might sound overwhelming – but remember: you don’t have to save it all right away.

If you don’t have an emergency stash yet, prioritize saving one month’s worth of expenses as your initial safety net before moving onto the bigger goal of an emergency fund. Start by putting aside a set amount from every paycheck; even small amounts add up over time. Check out SoFi’s emergency savings calculator to determine how much you’ll need.

Where should you keep your emergency fund?

There are a variety of accounts that could work. The best ones will earn you a high interest rate and offer easy access to your money when you need it. And it can be helpful to keep your emergency fund separate from other accounts, reducing the temptation to dip into it. The SoFi Bank, N.A. high yield savings account checks all of those boxes, offering features to help organize your money and set specific goals (using Vaults) and save your spare change (using Roundups).

Start saving – and don’t give up

Start as small as you need to — it could be as little as $10 or $20 per paycheck. The trick is to stay consistent, saving at whatever cadence works for you, whether it’s weekly, bi-weekly, or monthly. If that proves challenging, review your spending to identify where you might be able to cut back. (SoFi members can use the free Relay tool to automate tracking and budgeting). Eventually, you’ll have a financial cushion that will provide comfort and make it easier to handle it when the unexpected comes your way.

In financial health,
Brian Walsh
PhD, CFP
SoFi Head of Advice & Planning

Read more on the importance of saving for retirement early here.

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Photo Credit: iStock/roberthyrons

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