How to build an emergency fund

Unexpected challenges are a part of life. Financial hardship, health problems, car breakdowns, or sudden job loss can all put pressure on your finances – often when you least expect it.

That’s why building an emergency fund is one of the most important steps you can take to protect your financial wellbeing. By putting money aside in advance, you may be able to avoid turning to high-cost credit when life throws you a curveball.

Before you start saving, it’s also worth understanding your wider borrowing options and responsibilities. Our guide on what to know before borrowing online explains what to consider before taking out any form of credit.

In this guide, we’ll explain what an emergency fund is, how much you might need, and practical ways to start building one.

In this guide:

• What is an emergency fund?
• Why do I need an emergency fund?
• How much emergency fund should I have?
• How to start an emergency fund
• Tips for getting started 
• How to handle immediate financial emergencies
• Summary and next steps
  

What is an emergency fund?

One of the most effective ways to prepare for life’s uncertainties is to build emergency savings. An emergency fund is a pot of money set aside specifically for unexpected expenses – not for holidays, gifts, or everyday spending.

It’s designed to help cover urgent costs such as:

• Car repairs
• Emergency home maintenance
• Vet bills
• Short-term loss of income
• Unexpected medical or childcare expenses

Having emergency savings in place can help reduce reliance on credit, including payday loans or other short-term loans, when something goes wrong.

Building a meaningful emergency fund can take time and consistency. While it may require sacrifices in your day-to-day spending, it can offer long-term peace of mind and financial stability.

Why do I need an emergency fund?

When unexpected costs arise, they often demand immediate attention – and that’s where many people feel they need to turn towards short-term borrowing.

Common examples include:

• Car repairs, especially if you rely on your vehicle for work
• Vet bills, which are often unexpected and costly
• Boiler breakdowns or urgent home repairs
• A sudden drop in income, such as reduced hours or redundancy

In fact, many of the most common reasons people take out payday loans are linked to emergency expenses. You can explore this further in our guide on common uses for payday loans.

By having an emergency fund in place, you may be able to:

• Avoid taking out emergency credit altogether
• Reduce stress during already difficult situations
• Make decisions based on what’s best for you – not what’s fastest

While borrowing can sometimes be appropriate, especially when managed responsibly, an emergency fund gives you more control and flexibility when life doesn’t go to plan.

How much should I have in my emergency fund?

Financial experts often recommend saving enough to cover three to six months’ worth of essential living expenses. This includes:

• Rent or mortgage payments
• Utility bills
• Food and transport
• Insurance and childcare

How much you should have in your emergency fund will depend on:

• Your income stability
• Whether you’re self-employed or salaried
• Household size and responsibilities

For some, this might mean starting with a smaller goal – for example, £500 to £1,000 – and building up gradually. If you’re wondering how much your emergency fund should be, the key is to make it realistic for your circumstances and adjust over time.

How to start an emergency fund

There are several practical ways to begin saving, even if your budget feels tight.

Assess your monthly income and expenses

Start by reviewing your income and essential outgoings, such as rent, utilities, food and transport. This gives you a clear picture of what you must spend each month.

Look for areas where small cutbacks could be made – unused subscriptions or frequent takeaway spending can often free up extra cash.

Set realistic savings goals

Rather than aiming for a large figure straight away, focus on consistency. Saving a small amount each month is far better than waiting for the perfect time to start. Even £25-£50 a month can build momentum and help form a long-term saving habit.

Set up your emergency fund

Open a separate savings account so your emergency money isn’t mixed with everyday spending.

Consider:

• Competitive interest rates
• Instant or easy access
• No penalties for withdrawals

Setting up a standing order can help automate your savings, making it easier to stick to your plan.

Find additional ways to save

You could:

• Reduce non-essential spending
• Negotiate bills or insurance
• Sell unused items
• Save spare change or cashback

Small changes can add up over time – and every contribution counts.

Tips for getting started with building an emergency fund

If saving feels overwhelming, these tips can help you get started and stay on track:

• Review your spending regularly: Check your income versus outgoings every few months and adjust your savings if your situation changes.
• Increase savings gradually: As debts reduce or income rises, consider increasing your monthly contribution.
• Treat savings like a bill: Prioritise your emergency fund just like rent or utilities.
• Avoid dipping into it unnecessarily: Keep it strictly for emergencies to maintain its purpose.

How to handle immediate financial emergencies

If you’re facing a financial emergency without savings in place, you may consider short-term options such as emergency loans or other forms of credit.

It’s important to understand that short-term borrowing can be expensive and should only be used responsibly. If you’re struggling to access credit, our guide on why can’t I get a loan? may help explain why.

Before borrowing, explore whether support or advice is available – especially if financial difficulties are ongoing.

Summary and next steps

Building an emergency fund can take time, but it’s one of the most effective ways to protect yourself from financial shocks and reduce reliance on credit. By starting small and staying consistent, you can create a safety net that supports your long-term financial wellbeing.

If you’d like to explore related topics, you may find these Moneyboat guides helpful:

• Responsible lending
• Financial wellbeing tips
• Managing your personal cash flow

If you’re struggling financially or need independent advice, support is available from trusted organisations such as StepChange, Citizens Advice, MoneyHelper and National Debtline.

You can also find further resources on our free support organisations page.