The Real Cost of Not Having an Emergency Fund — and What To Do About It
Written by
Paige Cerulli
Edited by
Zuri Anderson
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An emergency fund can help you navigate unexpected expenses, giving you peace of mind.
If you don’t have an emergency fund, you could face major impacts that affect your finances, your mental health and even your career.
The Financial Cost of Not Having an Emergency Fund
According to Myles Zueger, wealth advisor, certified financial planner (CFP) and certified private wealth advisor (CPWA) at Adams Wealth Partners, not having an emergency fund can turn a small, routine expense into a long-term financial setback.
If you need something as simple as new tires for your vehicle, but you don’t have savings, you might have to rely on high-interest credit cards, personal loans or early withdrawals from retirement accounts.
“Those choices can lead to added interest costs, taxes and penalties that far exceed the original expense,” explained Zueger. “In many cases, not having an emergency fund causes people to spend significantly more over time than if they had savings available to cover the situation upfront.”
The Psychological Cost of Not Having an Emergency Fund
Not having an emergency fund leads to psychological impacts, too.
Cynthia Campos Delgado, founder and financial advisor at Campos Wealth Management, explained that not having an emergency fund can lead to extra stress. You not only have to worry about how to pay for unexpected expenses, but you may also have the stress of worrying about how you’ll repay a loan or credit card that you had to take out.
Zueger explained that such stress can spill over into work performance, personal relationships and overall well-being.
“People may feel stuck in jobs they don’t enjoy, delay necessary healthcare or avoid important life changes because they don’t have a financial cushion to fall back on, even for a short period of time,” he said. Plus, people may put off retirement contributions or might sell their investments, disrupting their long-term plans and retirement saving, which can lead to additional stress.
How To Start Building Your Emergency Fund
To build an emergency fund, start by making small contributions automatic, recommended Zueger.
“Begin with a short-term goal of $500 to $1,000,” he suggested. “The initial buffer alone can prevent many common emergencies from turning into debt.”
Zueger recommended treating your emergency fund contributions like a bill. Set up automatic transfers into a high-yield savings account that you use only for your emergency fund.
Delgado suggested looking for ways to cut spending to jump-start an emergency fund. Consider eating out less and pausing or cancelling subscriptions to free up money that you can put toward your emergency fund.
Be sure to contribute other money you might come across to the fund to help boost it, Zueger suggested. For example, put your tax refunds, bonuses or gifts toward the fund to jump-start your savings.
“Progress matters more than perfection,” Zueger said. “Small, consistent contributions add up over time.”
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