• Build financial resilience by creating an emergency fund, reviewing your budget regularly, and exploring side income opportunities.
  • Use insurance coverage, preventive maintenance, and debt reduction to minimize the impact of unexpected expenses.
  • Consider responsible borrowing options, like credit cards, personal loans, or lines of credit, to cover urgent costs when savings aren’t enough.

Many people find saving money a challenge. As prices rise, personal budgets are squeezed tighter and tighter, making it even more difficult to set money aside for the proverbial “rainy day.” In fact, more than 40% of American households don’t have at least $1,000 set aside to the cover the cost of an emergency.[1]

Building an emergency fund is one way to prepare to weather unexpected expenses. Still, insurance, borrowing, and even prevention may also help you navigate tough financial times and large one-off expenses.

Examples of Unexpected Costs

Unexpected costs can come in a variety of forms. They're usually significant and may not be covered by your regular budget. Examples of unexpected costs include:

  • Costly household expenses, such as a damaged roof or broken furnace.
  • Car breakdowns and repairs.
  • Medical expenses from serious injury or illness.
  • Damage caused by natural disasters.
  • Job loss or temporary unemployment.

Simple Ways to Start Building an Emergency Fund

Building an emergency fund takes time and planning. Even if you can only set aside a small amount at first, consistent saving may make a meaningful difference over time. The key is to start with manageable steps that fit your current budget and gradually build momentum. By separating your emergency fund from your everyday spending, automating contributions, and making the most of occasional windfalls, you may be able to create a safety net that grows steadily and is ready when you need it most.

1. Open a Separate Savings Account

Begin by opening a separate savings account—preferably a high-yield savings or money market account — so your emergency fund earns interest while remaining accessible.

2. Automate Your Savings

Set up automatic transfers from your checking account, even for as little as $10 or $20 a week, to help you save consistently without having to think about it.

3. Increase Contributions Over Time

Once you’re in the habit of contributing, look for ways to increase the amount. Redirect the cost of a canceled subscription or a small weekly expense into your fund, or deposit part of any windfalls — such as a tax refund or bonus — straight into savings.

4. Use Direct Deposit When Possible

If your employer offers direct deposit, consider having a portion of each paycheck sent directly to your emergency fund account. This helps you avoid the temptation to spend the money before it’s saved.

5. Set a Realistic Goal and Replenish as Needed

While it’s ideal to work toward three to six months’ worth of living expenses, don’t be discouraged if that goal feels far away. Focus on building momentum, replenishing the fund if you need to use it, and making steady contributions as your budget allows.

Managing Debt and Increasing Income to Help You Save

Adding to your income or decreasing your expenses and debt are great ways to help free up room in your budget and start saving. Reducing existing debt may free up more of your monthly budget for emergencies. Strategies like paying more than the minimum on credit cards, consolidating high-interest debt, or negotiating lower interest rates may help. At the same time, exploring side income opportunities — such as freelancing, part-time work, or selling unused items — may create extra cash flow for savings or urgent expenses.

Prevention is Key

Regular home and car maintenance, routine health checkups, and making healthy lifestyle choices may help prevent expensive emergencies. Of course, no one can fully avoid unexpected expenses, but taking some steps to solve problems while they're still small may help avoid bigger problems later on.

The Role of Insurance in Planning for Unexpected Expenses

Because it can be difficult to build sufficient savings to cover unexpected expenses – especially in the current economic climate – it’s good to have a backup plan if the need arises.

Having adequate insurance—whether health, pet, home, or disability coverage may help lessen the financial impact when the unexpected happens. It's important to understand what your insurance covers and have enough savings to cover any co-payments that might still be needed.

Borrowing options for unexpected expenses

If you don't have sufficient savings to cover an emergency expense, then you might need to consider borrowing money. 

Everyone’s financial situation is unique, but there are some credit tips that may help you navigate your next steps. Be mindful that interest rate and amount of your loan or line of credit may vary based on your individual credit situation and the product you choose, so be sure to compare options before you make your decision:

  • Credit Card: If you have an immediate need – for example, a critical car or small home repair that can’t wait – one option is to pay with a credit card. If you have enough available credit on a card that’s already in your wallet, this is a solution that could help you get those repairs done quickly. It also allows you the option to pay that debt as soon as you have cash available or opt to pay it off over time if you prefer. Keep in mind, you could accrue interest charges if you carry a balance from month to month on your credit card account.
  • Credit Limit Increase: If your current credit card(s) don’t have sufficient balance(s) available, consider requesting a credit limit increase on one or more of your current cards.  
  • Personal Installment Loan: If you need a specific loan amount, consider a personal installment loan. Or if you own a home and have available equity, investigate the possibility of a home equity loan. In either case, the installment loan option typically provides a fixed interest rate and a fixed monthly payment amount. This option lets you borrow what you need in one lump sum and pay it off over a designated time period.
  • Line of Credit: If you need the flexibility to continuously access a credit amount, a line of credit may be an option to consider. With either a personal line of credit or home equity line of credit, you can reuse your credit line up to your approved credit limit as you pay it back without the need to reapply or wait for funding. This option may be helpful in managing indetermined expenses over time, such as ongoing medical costs or ongoing home repairs. 

How you can prepare for emergencies, even if you can’t save.

While all these borrowing and earning tips may be useful in weathering an immediate financial need, they might be helpful in preparing for the next emergency as well. By taking one or all of these actions now, you’ll find yourself in a better position:

  • Make sure you have available credit on your current credit cards – or apply for a new credit card that you can designate for emergency expenses – if possible.
  • Consider establishing a personal installment loan, line of credit or home equity line of credit to cover high-dollar emergencies.
  • Know where you can cut your budget. Even if you choose not to eliminate non-critical spending, it can be helpful to know what items can be easily cut and how much money they might save.
  • It’s also helpful to remember that you may have other savings you could access beyond your savings account. If you routinely invest in your company’s 401(k) plan – or if you have one you’ve invested in the past – you may be able to use those funds in case of emergency. Depending on how you use the funds, it may be considered either a withdrawal or a loan. You’ll want to talk to your fund manager or your company’s human resources team for details about your specific account.