How to Create an Emergency Fund That Works Best for You

Life has a way of throwing curveballs when you least expect it—a car repair, a medical bill, or even a sudden job loss. At SGL Financial in Buffalo Grove, IL, we’ve seen firsthand how an emergency fund can be your financial lifeline when you experience the unexpected. 

With over 30 years of experience, our team of fiduciary financial advisors in Buffalo Grove can assist you in constructing a financial plan that includes creating an emergency fund to ensure you are prepared to handle life events with financial consequences. 

In today’s blog, we’ll discuss practical steps you can take today to create an emergency fund that works for you. 

Read our latest guide: Using Technology to Be More Financially Prepared in 2025

Why You Need an Emergency Fund

Let’s start with the basics: an emergency fund is easily accessible money set aside for unexpected expenses—think of it as your emergency fund. On our podcast, “Our 2 Cents,” our co-founder Steve Lewit often emphasizes, “It’s not about if something will happen—it’s when.” 

Whether it’s a leaky roof or a gap between paychecks, having cash-on-hand keeps you from dipping into retirement savings or racking up credit card debt. In my YouTube video “Protecting Your Retirement Savings,” I drive this home: “An emergency fund isn’t just money—it’s freedom from stress.” 

So, how do you build one that fits your life? Let’s break it down.

Step 1: Define Your “Enough”

First, how much do you need in your emergency fund? 

The old rule of thumb—three to six months of expenses—works for some, but it’s not one-size-fits-all:

• You might lean toward nine months if you’re a single earner with kids. 
• Three months of reserves might suffice if you have dual incomes, little debt, and low fixed costs.

Start by totaling your must-have expenses: rent or mortgage, utilities, groceries, transportation, and insurance. Multiply that by your target months. For example, if your monthly essentials are $3,000, a six-month fund would be roughly $18,000 after taxes and other deductions. 

“Beware of the Retirement Risk Zone” uses the Investor A vs. Investor B scenario to show how early losses can sink a plan without a cushion. Tailor your goal to your risks—a Buffalo Grove CFP® professional can help you crunch the numbers.

Step 2: Start Small, Build Steady

Don’t let a big number scare you off. At SGL Financial, we’re big believers in momentum. Start with what you can easily afford—say, $500 per month. That’s enough to cover a surprise vet bill or a tire blowout. I often say, “Small wins build big confidence.” 

Once you hit that first milestone, aim higher—$1,000, then $5,000, and so on. 

Automate your savings efforts: set up a direct deposit from your paycheck to a separate account. Even $50 a week adds up to $2,600 in a year. Consistency beats perfection. Steve Lewit’s advice? “Treat it like a bill that you owe to yourself.” 

Before you know it, a fund begins to grow into something substantial.

Step 3: Pick the Right Home for Your Money

Where you build your emergency fund matters; it should be accessible but not too tempting to tap regularly. Consider using a high-yield savings or money market account to strike that balance—safe, liquid, and earning a little bit of interest. 

Avoid tying up your cash in stocks or long-term CDs—volatility and penalties can bite you when you need it most. 

In “How to Avoid Common Investment Mistakes,” our video stresses keeping emergency funds separate from investments. For those “uh-oh” moments, consider using accounts with no fees and easy ATM access.

Step 4: Supercharge with Windfalls

Here’s a financial advisor tip: use unexpected cash to turbocharge your fund. Tax refunds or bonuses—funnel them straight into your emergency stash. Last year’s average tax refund was over $2,700, which could be a good jump-start for your savings efforts.

On our podcast, “Our 2 Cents”, our co-founder, Steve, often quips, “Windfalls are your chance to pay future you a favor.” Pair this with trimming extras—like that third streaming service you barely use—and redirect the savings. 

It’s not about deprivation but prioritizing what makes you feel secure. 

Step 5: Match It to Your Lifestyle

Your emergency fund should reflect your reality. Do you have a side hustle with unpredictable income? Save more months’ worth of assets. Do you own an older home that is prone to increasing amounts of repairs? 

Pad it for those “fun” surprises. In my video “Running Out of Money in Retirement,” I note, “Fear can paralyze you, or it can prepare you—build a fund that turns fear into an actionable strength.” 

If you’ve got pets, kids, or a long commute, factor those risks in. On the flip side, if you’re debt-free with a stable income, you might not need as much in your cash reserve. The key? Your financial plan should be highly customized to your situation, needs, history, genetics, and financial goals. 

Step 6: Protect It from Yourself

Define what you deem an emergency: job loss, medical costs, urgent home repairs, transportation. An emergency fund should not be used for impulse buys. Dipping in it for non-essentials will erode your safety net. 

Your cash reserve should, at a minimum, be kept in a separate account, and even consider keeping it at a separate bank. Label it mentally as a lifeline, not a fun account. If you do have to use it, try to rebuild the account as quickly as possible so you can have the correct amount of cash reserves that will help when the next unexpected event occurs. 

Discipline here pays off big later.

Your Next Move

SGL Financial offers personalized financial planning to help you grow and protect your wealth. Our team of fiduciary advisors takes a proactive approach, tailoring strategies to your unique goals while prioritizing tax efficiency and long-term stability. 

When building a cash reserve fund, SGL Financial can help you determine the right amount to set aside, where to keep it for accessibility and growth, and how to integrate it into your broader financial plan. 

Whether preparing for market volatility, unexpected expenses, or future opportunities, SGL’s expertise ensures your financial strategy remains strong in any economic environment.

Ready to talk? Let’s connect.