{"id":95,"date":"2020-07-22T13:00:00","date_gmt":"2020-07-22T13:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/emergencyfund\/"},"modified":"2025-09-05T19:50:57","modified_gmt":"2025-09-05T19:50:57","slug":"emergencyfund","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/emergencyfund\/","title":{"rendered":"How to Start Building Your Emergency Fund in 2025"},"content":{"rendered":"
\"

The short answer? By putting one financial foot in front of the other.<\/p><\/div>\n

\n

Welcome to the year of \u201cOh, shit, maybe I should cancel that Orangetheory membership and cut back on the Seamless.\u201d<\/p>\n

Thank you, economic turmoil, for waking us up to the fact that maybe\u2014just maybe\u2014it\u2019s worth taking a more intentional look at the way we\u2019re spending, how much we\u2019re saving, and if we\u2019re investing properly.<\/p>\n

I say this with only an almost<\/em>-undetectable tinge of sarcasm, since in some ways, I do think this wake-up call helped a lot of us course-correct.<\/p>\n

Today, I want to take a look at how to consider your financial life holistically: a sanity check, if you will, that the way your money breaks down makes sense. Not emotional sense, but mathematical<\/em> sense. Because sure, you may have found a way to justify the $800 in DoorDash monthly purchases (\u201cI work hard!\u201d), but if that represents 25% of your total take-home pay\u2026 you have to wonder, does this make sense arithmetically<\/em>? <\/p>\n

One of the burning questions that initially drove my interest in personal finance in 2018 was this:<\/p>\n

How much should I be saving and investing every month?<\/strong><\/p>\n

The short, simple, and frustrating answer is, As much as you possibly can<\/em>.<\/p>\n

But how do you balance \u201cas much as possible\u201d with \u201cnot wanting to be a hermit\u201d? You turn to the numbers.<\/p>\n

Let\u2019s start big-picture. What percentage of your income should you be aiming<\/strong> to save and invest every month, broadly speaking? The minimum<\/em>, in my mind, (take a deep breath) is around 25%. <\/p>\n

While this isn\u2019t going to be realistic for many (especially those with high student loan debt or low incomes<\/em>), it\u2019s more realistic than I think most moderate to high earners realize. There\u2019s a clear and distinct difference between, \u201cI can\u2019t save 20% of my income because I have to pay $1,000 toward my grad school loans every month,\u201d and, \u201cI can\u2019t save 20% of my income because I\u2019m living beyond my means.\u201d <\/p>\n

This distinction makes people understandably squeamish, because it can feel like there\u2019s judgment attached to the qualification of \u201cbeyond my means.\u201d And if you grew up in a house where you watched the adults casually and consistently overextend themselves financially, it\u2019s even more likely that this pattern will appear in your own spending habits. <\/p>\n

The good news is, you<\/strong> are in control now. Every swipe, tap, or insertion of the Sapphire card is wholly and inescapably yours. You can break the pattern, if there is one.<\/p>\n

For most, though, it probably isn\u2019t a convoluted, emotional relationship with money\u2014it\u2019s just simple awareness, or as JL Collins calls it, \u201cbenign neglect.\u201d<\/p>\n

But jumping into individual investing before you have an emergency fund is like entering a BMX race before you take off the training wheels for the first time (though the enthusiasm is admirable). The emergency fund is the basis for financial security.<\/p>\n

\u201cSetting boundaries\u201d becomes \u201cbuilding a launchpad\u201d<\/h4>\n

So while 25% is the number we\u2019ll start with, I want you to consider what 30% (or maybe even 40%) would look like. Let\u2019s expand the consideration of saving from denying yourself joy in the present<\/strong> to prioritizing your future desires<\/strong>.<\/p>\n

The human brain is pretty bad at this. It takes work and awareness. We\u2019ve been evolutionarily conditioned to place more value on the reward right in front of us than the delayed gratification of a (sometimes much bigger) reward 5 or 10 years from now. Because hey, in the age of wooly mammoths and a life expectancy of 20, why the hell would I bet my cave paintings on compound interest when the fancy fur pelt is right in front of me?<\/p>\n

Let\u2019s evolve past caveman personal finance policy.<\/p>\n

We aren\u2019t denying<\/em> ourselves the fur pelt now. We\u2019re casting a vote for a future version of ourselves who has grown wealthy enough to buy the entire herd of sheep. <\/p>\n

And because I\u2019m running out of prehistoric analogies, let\u2019s shift to the numbers.<\/p>\n

An example<\/h4>\n

25% is not meant to intimidate or agitate you, just to provide a target. Let\u2019s use an example. <\/p>\n

If my salary is $60,000 and my company offers a 6% dollar-for-dollar 401(k) match, the first thing I should do (assuming I\u2019m debt-free; if you\u2019re not debt-free, consider jumping to this post about how much your life costs<\/a> that digs into debt strategy) is set my 401(k) contribution at 6%. This is the preemptive strike\u2014it seizes the free money being offered to you and casts a vote for the gray-haired, shuffleboard-playing future version of you. <\/p>\n

Your first 6% toward your goal of 25% is knocked out. And really, since that decision means your company is now contributing 6% as well, it\u2019s a little like you\u2019re at 12%. But we aren\u2019t stopping there.<\/p>\n

Next, let\u2019s circle back to layer one: Savings.<\/p>\n

When it comes to simple savings, your emergency fund <\/strong>is technically your #1 priority, so shoveling as much money into your emergency fund as possible is the blunt-force approach. <\/p>\n

And how much should be in your emergency fund? I know we all say it\u2019s 3-6 months of expenses, but unfortunately, most of us don\u2019t know exactly how much that is (again, I direct you to the article about determining how much your life costs<\/a>).<\/p>\n

If you spend like the average person does, yours is probably around $20,000<\/strong>.<\/p>\n

Whether seeing \u201c$20,000\u201d either made you sigh in relief or draw a sharp inhale tells you exactly what your next step is: <\/p>\n

If you\u2019re nowhere near $20,000 in savings, let\u2019s forget about investing for a second: The first and only priority (beyond the 401(k) match) is hitting this number.<\/p>\n

Where to build your emergency fund if you\u2019re just starting<\/h4>\n

My favorite place to build an emergency fund is the Betterment Cash Reserve account<\/a>, which currently offers around 4% APY.<\/p>\n

In our $60,000\/year example, the take-home pay after tax is probably about $4,000\/month after taxes, and $3,700\/month after you take out the 6% 401(k) contribution we decided on earlier.<\/p>\n

So there you are, with your $3,700\/mo.<\/strong>\u2014and 6% of your 25% already checked off. <\/p>\n

If you\u2019re building an emergency fund, shoot for depositing the remaining 19% right into the emergency fund account of your choosing. That\u2019s $700 per month, or $350 per paycheck. Automate it so you don\u2019t have the chance every month to change your mind.<\/p>\n

I know it might feel like a lot\u2014because realistically, it is.<\/p>\n

But this means that 31% of your income is going toward Future You instead of Present You (your 6% contribution, your employer\u2019s 6% contribution, and your 19% contribution to your emergency fund). <\/p>\n

Your first $100,000<\/h4>\n

Even if you never got a raise or increased your contributions, you\u2019d be closing in on around $100,000 invested in about five years. And by saving and investing 25% of your income, you\u2019re on track to go from a $0 net worth to total financial freedom<\/em> in approximately 26 years. <\/p>\n

In this example, a paycheck that typically nets $2,000 per pay period will leave you with about $1,500 to spend after your saving and investing\u2014but it\u2019ll be money you can spend guilt-free, because you know you\u2019ve already paid the most important person in the equation: Future You.<\/p>\n

Of course, these examples become far more eye-widening when you start using larger salaries. The ironic part? It also becomes increasingly easier to achieve\u2014living on 75% of $60,000 is far more difficult than 75% of $100,000. This is why negotiating for a strong salary is arguably the most important part, and why it\u2019s such a critical focus in Chapter 2 of my book Rich Girl Nation<\/em><\/a>, \u201cThe Truth About Earning More.\u201d <\/p>\n

Once you cross the finish line<\/h4>\n

After the emergency fund is stocked, it\u2019s time to sit back, feel smug, and celebrate.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Welcome to the year of \u201cOh, shit, maybe I should cancel that Orangetheory membership and cut back on the Seamless.\u201d Thank you, economic turmoil, for waking us up to the fact that maybe\u2014just maybe\u2014it\u2019s worth taking a more intentional look at the way we\u2019re spending, how much we\u2019re saving, and if we\u2019re investing properly. I […]<\/p>\n","protected":false},"author":178814,"featured_media":2425,"comment_status":"closed","ping_status":"open","sticky":false,"template":"si-template-single-post-emergency-funds.php","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[49],"class_list":["post-95","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-spending-and-saving","tag-emergency-funds"],"yoast_head":"\nHow to Start Building Your Emergency Fund in 2025 - Money with Katie<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/moneywithkatie.com\/emergencyfund\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Start Building Your Emergency Fund in 2025 - Money with Katie\" \/>\n<meta property=\"og:description\" content=\"Welcome to the year of \u201cOh, shit, maybe I should cancel that Orangetheory membership and cut back on the Seamless.\u201d Thank you, economic turmoil, for waking us up to the fact that maybe\u2014just maybe\u2014it\u2019s worth taking a more intentional look at the way we\u2019re spending, how much we\u2019re saving, and if we\u2019re investing properly. 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