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How to start an emergency fund

It's always a good idea to be prepared with an emergency fund for any financial surprises that could come your way: a leaky roof, a broken washing machine, the loss of a job. No matter how well you plan, you can't predict when unexpected costs will arise.

Especially in high-cost cities like Chicago, having savings set aside for an emergency can help soften the blow of a financial setback and keep you from going into debt or having to dip into your retirement or long-term savings.

While starting an emergency fund from scratch can seem like a daunting task, if you begin with small steps, you'll soon be on your way to having a healthy rainy-day fund. To get started, follow these practical tips and start saving for unforeseen costs:

Open a separate bank account

Simply put, an emergency fund is a stash of money you set aside to cover unexpected expenses when they arise. The goal is to consistently put money into your fund and avoid taking money out unless it's a true emergency.

The easiest way to put aside money you'll only touch in an emergency is to open a dedicated bank account. A savings or money market account can be your best bet, because they both offer easy access to cash in case of an emergency and both will earn you interest.

Enroll in BMO Digital Banking and give your account a nickname to remind yourself why you're saving. Call it the "rainy day fund" or just a straightforward, "emergency fund." This can help take away the temptation to dip into it before you really need it.


Open a savings account

"The goal is to consistently put money into your fund and avoid taking money out unless it's a true emergency."


Start tracking your finances

It's important to get a handle on how much you typically spend and how much you earn so you can set realistic savings goals for your emergency fund. Use an app or a simple spreadsheet to track your monthly finances, including fixed costs like rent and utilities, your out-of-pocket expenses like clothing and dining out, and your income.

As an example, according to the Bureau of Labor Statistics, household spending in Chicago is above the national average, with Chicago homes spending an average of $63,726 per year in 2017-18. Seeing where you stand in your spending can help you evaluate your spending habits.

When you get in the practice of tracking everything you spend and earn on a monthly basis, you can start to estimate how much you can reasonably set aside for an emergency fund. You might even find some expenses you can cut back on in favor of saving more.

Set your savings goal

How much should you plan to save in your emergency fund? In general, you'll want to shoot for the equivalent of three to nine months of your regular take-home pay. Your lifestyle and living situation will impact how much you'll want to put away:

  • Single and renting? You might want to aim for three months' worth of paychecks.
  • Married with kids and a mortgage? You'll probably want to save enough for six months.
  • Self-employed or freelancing? Your goal should be closer to nine months.

Once you have a savings goal in mind, you can start planning how to fund it.


"You'll want to shoot for the equivalent of three to nine months of your regular take-home pay."


Make saving a habit

This is probably the most important tip. Make a habit of setting money aside and dialing back your spending, so you can watch your emergency fund grow.

One way to make it easier on yourself is to set up automatic transfers into your savings account. Once you've enrolled in BMO Digital Banking you can setup recurring transfer between account, which automatically transfers a set amount from your checking account to your BMO Harris savings account.

Say you want to save $40 a month. Set up Auto Save for your checking account and $40 will move to savings every month, and you don't have to do a thing. Automating your savings is one of the best ways to turn it into a habit, because you don't have to think about putting money away, and it's harder to make excuses when the money moves automatically every month.

The bottom line on emergency funds

If you're feeling a bit overwhelmed, remember that the most important step is just to start an emergency fund. Don't get too hung up on the exact figure to put aside. No matter how small your contributions, if you keep it up and slowly build a safety net, you'll be more prepared to handle whatever life throws your way.

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