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How Much Do You Need in an Emergency Fund?

Post Date:10/03/2023 1:11 PM

woman working on her financial planning 

Michael Colon, Community Relations Officer, SDCCU


Emergencies such as job loss, unexpected damage to your home or an accident can harm your finances if you haven’t properly prepared. But they don’t have to be financially devastating if you have an emergency fund. Below are steps to help you start building one.

What Is an Emergency Fund?

An emergency or contingency fund is an accessible savings fund specifically set aside for unforeseen expenses. The fund is separate from long-term savings plans like a college savings or retirement plan. Rather, the funds are a safety net only to be used when an unexpected event occurs. Examples include job loss, extensive home damage or a medical emergency.

How Much Should You Save?

Experts recommend that you save enough to cover three to six months of your typical expenses.  This amount will vary by household. Start by calculating what you need to pay all your bills, including housing, utilities, insurance and debt. Then include necessities such as groceries and transportation for a month. Do not include recreational expenses like entertainment, dining out or non-essential shopping as these are items you can forgo. Finally, multiply the amount needed by the number of months you want to cover.

Don’t panic if you don’t have your emergency fund yet, and don’t be discouraged by the amount you need. Follow a plan to save over time to reach your goal. Expanding your savings is important when situations arise like a recession, market fluctuation, or if you are in an industry where layoffs are common. If you need help choosing the right budget to build your emergency fund, review our blog: Finding the Budget Style That Works for You.

Where Should You Keep Your Emergency Funds?

Unlike other savings and investments, you want to have your emergency funds immediately available in an interest-earning savings account. The reason you don’t want these funds to be in stocks, mutual funds or long-term certificates is that in an emergency, you will need the money immediately and these types of accounts often have fees or a waiting period. For more information on San Diego County Credit Union’s savings accounts and rates, visit

When Is the Right Time to Use It?

You want to withdraw from this fund only when you have an expense due to an emergency that you cannot cover with the funds from your regular checking or savings accounts. Once you have used cash from your contingency fund, set a goal to replenish it as soon as you can.

Emergencies never happen at convenient times, and having a contingency fund will ease your worries. Get started on your emergency fund sooner rather than later to help your future self be more equipped for unexpected life events.

Visit our Financial Knowledge Blog for more tips on setting up a solid financial future or join us for Financial Wellness Wednesdays.


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