Building a cushion for unexpected expenses can give you peace of mind and a stronger foundation for your future savings goals. A strong savings plan starts with knowing what you're saving for—and for many people, building an emergency fund is a smart first step.
Quick Answer: To start a savings plan, make building an emergency fund one of your first priorities. Set a small, automatic amount to save each month, keep it in a separate account you can access quickly and work toward three to six months of essential expenses over time. Once your safety net is in place, you can put more toward your other savings goals with confidence.
Emergency Fund vs. Regular Savings Account
These two accounts do different jobs, and understanding the difference can help you build a savings plan with a purpose.
| Emergency Fund | Regular Savings Account | |
| What is the purpose of the account? | Money set aside for the unexpected | Money you're saving toward a planned goal |
| How will the fund be used? |
Covers surprises like car repairs, medical bills or a gap in income |
Covers goals like a vacation, new appliance or holiday gifts |
| Where should I keep it? | Kept separate and easy to access | Kept in an account that fits your goals and timeline |
| How much should I save? |
Common target: three to six months of essential expenses | Target: whatever your specific goal costs |
Think of your emergency fund as the foundation of your savings plan and your regular savings as the goals you build on top of it.
Why Does an Emergency Fund Matter?
An emergency fund is money you set aside for life's unplanned moments: a surprise car repair, an urgent medical bill or an unexpected gap in income. Without one, those expenses may end up on a credit card, where interest can turn a one-time cost into months of payments.
Building an emergency fund can:
- Keep an unexpected expense from becoming long-term debt
- Reduce some of the stress that comes with financial surprises
- Help protect the money you're saving for other goals
That's why building an emergency fund is often one of the smartest first steps in a broader savings plan. It gives the rest of your financial goals a little more breathing room.
How Much Should You Have in an Emergency Fund?
The answer depends on your situation. A common guideline is three to six months of essential expenses, but that number can feel overwhelming when you're just learning how to start saving money.
You don't have to get there all at once. Start with a milestone that feels achievable.
- Just beginning? Consider a starter goal of $500 to $1,000. Even a smaller cushion can help cover expenses like a flat tire, copay or minor home repair.
- Have a starter cushion? Work toward one month of essential expenses.
- Ready to build more? Gradually work toward three to six months of essentials, including housing, utilities, groceries, insurance and minimum debt payments.
The right amount depends on your life. Someone with variable income or a household relying on one paycheck, for example, may feel more comfortable with a larger cushion than someone with multiple steady sources of income.
Not sure what your number should be? Excite's Savings Goal Calculator can help you set a target and see how steady monthly contributions add up over time.
How Do You Actually Start Saving Money Each Month?
The best way to save money each month isn't necessarily to make one big change. It's to create a system you can stick with.
- Create a budget that works for you. The 50/30/20 method is one common budgeting framework that divides income among needs, wants and savings. Those percentages won't work for every household, so think of them as a starting point rather than a rule. If saving 20% isn't realistic right now, start smaller and build from there.
- Pay yourself first by automating your savings. Treat savings like a bill that’s due on payday by setting up an automatic transfer from checking to savings. This helps you consistently make progress without relying on what’s left at the end of the month.
- Start small and step it up. Even a modest monthly savings plan can build momentum over time. Increase your contribution when your budget gives you an opportunity, like after a raise, a paid-off bill or a decrease in another expense.
Excite's 50/30/20 Budget Calculator can also help you look at where your money is going and identify opportunities to save.
Where Should You Keep Your Emergency Fund?
Excite's Extra Savings gives you a dedicated place to build savings while keeping your money accessible. As with any account, be sure to review current rates, terms and eligibility requirements before deciding where to keep your emergency fund.
One thing to keep in mind: an emergency fund generally shouldn't be locked away where accessing it could mean an early withdrawal penalty. Share Certificates can be useful for savings goals with a longer timeline, but emergency money should remain readily available when you need it.
Ready to Start Your Emergency Fund?
Excite Credit Union offers several ways to put your savings plan into action:
- Extra Savings can give your emergency fund a separate place to live while keeping your money accessible.
- Automatic transfers can make it easier to build your balance consistently without having to remember to move money each month.
- Excite Share Certificates can come into the picture later for savings you know you won't need right away.
Not sure how much you can realistically put away each month? As an Excite Member, you also have access to free financial counseling, helpful resources and webinars through our nonprofit partner, Balance, to help you create a budget, manage your money and keep moving toward your goals. If you'd like to dig deeper into building emergency savings, the Consumer Financial Protection Bureau offers a helpful guide to getting started.
Whether you're starting with your first $100 or working toward several months of expenses, the important part is getting started. Build a savings plan that works for your life, automate what you can and give yourself room to make progress one step at a time.
Frequently Asked Questions
How Do I Start a Savings Plan?
Start by setting a clear savings goal and making an emergency fund one of your first priorities. Choose an amount you can realistically save each month, automate the transfer if possible and keep your emergency savings in a separate account that's easy to access. Over time, you can work toward three to six months of essential expenses while also building savings for other goals.
How Much Should You Have in an Emergency Fund?
A common guideline is three to six months of essential expenses, but you don't need to reach that amount immediately. An emergency fund for beginners can start with a smaller milestone, such as $500 to $1,000, before growing toward one month and eventually several months of expenses.
Where Should You Keep Your Emergency Fund?
Keep your emergency fund in a separate, easy-to-access savings account. The goal is to keep the money available when an unexpected expense comes up while allowing it to earn dividends in the meantime.
What's the Difference Between an Emergency Fund and a Regular Savings Account?
An emergency fund is reserved for unplanned expenses, such as a car repair, medical bill or unexpected gap in income. Regular savings is typically used for planned goals, such as a vacation, holiday spending or a large purchase.
What's the Best Way to Save Money Each Month?
One of the easiest ways to save consistently is to automate it. Set up a recurring transfer to savings around payday so you're paying yourself first instead of relying on whatever happens to be left at the end of the month.
Rates, terms and account features are subject to change and may vary. Calculators and tools are for educational and estimating purposes only. See Excite Credit Union for complete and current account details.
