You have no control over the volatility in financial markets or the economic tumult caused by President Trump’s tariff policies. But you can prepare for financial potholes by bolstering your rainy-day fund.
“Emergency savings is one of the single best predictors of a person’s financial well-being,” said Stephen Roll, co-director of research and policy innovation at the Center for Social Development at Washington University in St. Louis, where he studies economic security.
Consumers are facing more uncertainty than usual about the economy. While the labor market has held steady, with unemployment at 4.2 percent in April, the Trump administration’s pursuit of tariffs has rekindled worries about both inflation and a possible business slump.
“Nobody can predict what’s going to happen,” said Ramit Sethi, the author of personal finance books, including “Money for Couples.” “I’m hoping everything goes well.” But in case it doesn’t, he said, it’s wise to create a cash cushion.
How much should I save in an emergency fund?
Vanguard, the big mutual fund company, suggests setting aside $2,000, or half of one month’s expenses, whichever is greater, as a buffer to cover unexpected but common “shocks,” like a car or home repair or medical bill. Then, to protect against a possible job loss, it suggests continuing to save to build a buffer of three to six months of living expenses so you can pay your bills while looking for another job. (The average span of unemployment was just under six months, according to the latest jobs report.)
With roughly $2,000 on hand, people can generally cover unforeseen costs without resorting to credit cards, which carry double-digit interest rates, said Paulo Costa, a senior behavioral economist at Vanguard who is also a certified financial planner. “The initial $2,000 is really what makes a big difference,” he said, by helping people avoid becoming financially derailed by common, if unanticipated, expenses. “Having it when you need it provides people with a lot of peace of mind.”
Even smaller amounts can help, Dr. Costa said. “Saving something is better than saving nothing.”
Some research has shown that for lower-income families, savings of as little as $250 to $750 can significantly reduce the likelihood of serious financial woes, like missing a utility payment or being evicted.
Also, take your family’s circumstances into account, said Spencer Betts, a certified financial planner in Lexington, Mass. If you are married and both you and your spouse make good salaries, maybe saving three months of expenses is sufficient. But if you’re in a niche or low-demand industry and it may take a while to find a new job, you may want to put aside enough money to cover six months of expenses or more. He recommended setting both a number and a time frame. “The more specific the goal is,” he said, “the easier it is to save for.”
J. Michael Collins, a professor at the University of Wisconsin in Madison and a household finance specialist, said the three- to six-month guideline might be too daunting for many people. He suggested that people consider these questions: “What keeps you up at night? Making the rent or mortgage? A car payment?” Aim to set aside enough to cover a month or two of those expenses, he said.
Mr. Sethi said that given the potential upheaval from the tariffs, he would recommend building up savings to cover 12 months of expenses as a protective “moat,” in case companies begin to retrench and lay off workers. But he acknowledged that that was a large number for many people to contemplate, so savers should start with a smaller goal and build from there over time. “It’s a very ambitious goal,” he said.
How can I find extra cash to save?
Mr. Sethi advised scrutinizing nonessential spending for potential trims. This may include travel and restaurant meals. If you dine out multiple times a month, consider reducing eating out to once a month. He also suggests putting major purchases like a new car on hold, and stretching out personal services like haircuts from, say, four weeks to five weeks.
Create a “mission statement,” he said — something like, “In our family, we always have a financial moat in case something goes wrong.” That helps remind you that there’s a larger purpose for cutting spending, he said.
If you are paying extra on a mortgage to pay it off faster, you could temporarily stop that, especially if you have a low interest rate on the loan, he said. And if you max out contributions to a workplace retirement account, consider reducing contributions temporarily and putting the funds toward your emergency account. But you should at least continue contributing enough to get any match your employer offers, he said.
Once you have determined how much to save, automate transfers from your checking account to a separate emergency reserve account, Dr. Costa said. That way, you don’t have to remember to move the money.
In addition to making regular transfers to savings, Dr. Costa said, try to save one-time windfalls — such as an income-tax refund or a bonus.
Where should I keep my backup funds?
Someplace that’s accessible, but not too accessible, experts say — like a separate, high-yield savings account that’s linked to your checking account. Mixing the emergency money with your working cash may tempt you to spend it.
Most high-yield accounts, typically available at online banks, are paying rates of 3 or 4 percent or more, which is above the rate of inflation. Those rates are much higher than a typical checking account. Money market accounts — either at banks or money market mutual fund accounts available at brokerages — can also be a good choice.
Dr. Costa at Vanguard said that if you had built a substantial reserve, you might want to consider keeping at least some of the funds invested in the market, where they can earn higher returns. But that depends on your risk tolerance. “Emergency savings is for peace of mind,” he said, so whether any of your reserve is invested or kept completely in cash “is a personal decision.”
Can my employer help me save for emergencies?
More employers are exploring ways for workers to save for surprise expenses, either through accounts linked to retirement plans or via stand-alone apps. A provision of the SECURE 2.0 retirement law, which took effect last year, allows employers to offer emergency savings accounts within workplace retirement plans. Workers can contribute up to $2,500 after taxes to an emergency fund and withdraw the money as needed. (Generally, employees making less than $160,000 in 2025 are eligible.) Employers can match contributions, but they must deposit the matching funds into the retirement account.
Employers have been slow to adopt the retirement-plan option, in part because the rules for creating the emergency accounts are complex, said Emerson Sprick, an economist and associate director at the Bipartisan Policy Center, a think tank.
Still, interest is growing. T. Rowe Price, which oversees retirement plans for employers, announced in April that it had begun offering the accounts — formally, “pension-linked” emergency savings accounts — to its clients. T. Rowe also supports penalty-free, emergency withdrawals of up to $1,000 a year from retirement plans, another option permitted under SECURE 2.0. In addition, the company offers a stand-alone emergency savings option to employers, outside the retirement plan, through its Waysavers app. Employers can adopt one or all of the options.
Other stand-alone digital tools, like SecureSave, are helping companies offer rainy-day accounts to their workers. (One difference is that unlike retirement-linked emergency savings accounts, independent apps can’t automatically enroll workers.) SecureSave automatically transfers funds from workers’ paychecks into accounts at partner banks. If workers leave the company, they take the accounts with them.
Sabrina Jones, founder of moving and cleaning companies in Spokane, Wash., said that she began offering SecureSave to employees at both companies last summer and that the accounts had proved popular. One worker told her that she had used the funds to repair her car.
“It’s a great benefit,” Ms. Jones said. “I’m not a huge employer, but I want to offer what I can to be competitive.”
Workers at Movher, a moving company, who are paid biweekly, receive a match of $5 for every $20 contributed, while employees of the cleaning firm, paid weekly, get $2.50 for every $10. So far this year, Ms. Jones said, the cleaning employees have accumulated a total of $4,300, while the moving staff has saved $3,000.
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