According to a survey conducted by SecureSave, only one-third of Americans have enough funds to cover an unexpected $400 expense without having to resort to credit cards or loans.1 What’s more, 56% of Americans are unable to afford emergency repairs of $1,000.2 This data reflects the growing financial insecurity among many American households.
A financial safety net, like a surprise or emergency fund, is essential to provide a cushion for unanticipated costs such as car repairs, medical or veterinary bills, or job loss.
Covering unexpected expenses can be difficult without emergency money to fall back on. You may end up using credit cards, payday loans, or buy-now-pay-later options that rarely work in your favor over the long term. Here, we’ll define a surprise fund and provide practical steps for how to build an emergency fund quickly without sacrificing your quality of life. The good news is that little changes can make a big difference.
A surprise fund is a separate savings account set up as financial protection against unexpected expenses. These funds should only be used for financial emergencies and not everyday expenses or other discretionary purchases.
Examples of unexpected expenses or emergencies include:
Job loss or wage reduction
Unexpected medical bills
Mortgage or rent payments in jeopardy
Major household appliance repairs or replacements
Emergency travel expenses
Supplies in the event of a natural disaster
Emergency home repairs
Expenses that do not qualify as a financial emergency include:
New cars (unless your old one breaks down)
Cosmetic home improvements
Since everyone's financial needs are different, there is no one-size-fits-all answer for how much to keep in a surprise fund.
However, here is a step-by-step process to help you decide the right amount for you.
List all your basic and essential monthly living costs including housing, utilities, food, transportation, debt payments, medical costs, and entertainment.
Add up these costs to calculate the total amount needed for a month of expenses. This is the amount you would need should you experience a loss of income.
Consider how many consecutive months of expenses you may need.
Calculate the total amount you wish to have in your surprise fund by multiplying the monthly expenses by the number of months you would like to save for.
While the math will come out differently for everyone, the general rule is to save a minimum of three to six months’ expenses in your surprise fund. As a safeguard, be sure to keep your surprise fund in an FDIC-insured account, such as a savings or money market account, with an insured bank. Using these account types can also help you keep your emergency fund liquid, or easily accessible, in case of a financial crisis.
We recommended setting up a separate bank account for a surprise fund. To ensure you get the best features, shop around to compare fees, interest rates, and other account options. To avoid confusion, give the account a unique nickname (e.g., Survive Financial Crisis), indicating the purpose of the funds.
Setting up an automated transfer of a small, affordable amount each month or each paycheck is an easy way to ensure that money is consistently going toward your surprise fund. Automatic savings can be a great way to ensure that you are saving regularly without having to remember to do it yourself.
Digital payment tools like Venmo or Zelle can make it incredibly easy to make payments – they also make it incredibly easy to make payments out of your surprise fund by accident, or when maybe you shouldn’t. Consider only linking these tools to your main account, and transferring money over from your surprise fund if you need to make an unexpected payment through one of those tools.
You should never prioritize contributing to your surprise fund over paying bills, high-interest credit card balances, or high-interest loan payments. Determine a minimum amount you need in your surprise fund and prioritize putting money toward that goal ahead of non-essential spending. If you come in under budget on any expenses, such as groceries or gas, you can add the difference to your surprise fund to help build it up faster.
Once you have reached your minimum amount, maintain regular contributions to your surprise fund (automated or otherwise) to ensure that it keeps growing. You can also reevaluate your expenses regularly to make sure that the amount you have set aside is still adequate. In the event that you do need to tap into your surprise fund, keep track of your spending and make sure to replenish it once you are in a position to. In an ideal world, you never need to use these funds, but it’s important that they remain accessible when you need them.
Unexpected emergencies happen without warning, so pre-planning is essential to warding off difficulties down the road. Establishing a surprise fund can be a great way to ensure that you won't be caught off guard by unexpected bills and financial hardships.
If you don’t have a surprise fund yet, there’s no need to panic. You can start saving now to ensure you have the financial resources to face any challenges that may come your way. It can be helpful to talk through your surprise fund needs with a financial professional to help build a realistic strategy and keep you on track towards building this safety net.
1“Two in Three Americans Couldn’t Cover $400 Emergency, Suze Orman Warns,” Bloomberg, 01/24/2023
2“Here’s exactly how much Americans have in savings at every age – and (yikes) here’s what they should have,” MarketWatch, 11/05/2022
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
SMRU #5451822.1 exp. 2/10/25