What is an Emergency Fund and Why Do I Need One?

Money is tight when you’re in college, so it makes sense that setting aside money for non-essentials, like savings and emergency accounts, doesn’t feel like a priority. However, even a few dollars a month into these accounts will have your future self thanking you.

So what is an emergency fund and how can you start contributing to one, even while you’re on a student budget? Let’s break it down. 

What is an Emergency Fund?

An emergency fund is a savings account that you set aside for unexpected expenses. Think of it as a financial safety net that protects you from expenses that you don’t plan for or build into your monthly budget. It can help give you a sense of security and peace of mind knowing there is a financial cushion to fall back on when the unexpected happens.


What is an Emergency Fund Used For? 

An emergency fund can be used to cover things like car repairs, medical bills, vet bills, parking tickets, emergency travel, or your normal bills if you unexpectedly lose your job. Having an emergency fund can help you avoid going into debt or having to borrow money from friends or family in a financial emergency.


What is an Emergency Fund Not Used For?

An emergency fund is not used for everyday expenses like rent, food, or transportation (unless you have an unexpected loss of income, like medical leave, layoff, etc). It is also not used for luxury purchases. It may be tempting to dip into this pool of extra cash to fund a vacation or buy a new computer, but this money is specifically intended to address urgent and essential needs that arise without warning.


How to Start Building an Emergency Fund on a Student Budget

Despite their limited budgets, college students can still initiate the process of building an emergency fund. Here are a few tips on how to get started:

1. Establish a Budget:

Begin by creating a realistic budget that outlines income, expenses, and savings goals. A budget will help identify areas where expenses can be reduced or eliminated, freeing up money to allocate towards the emergency fund. Make your life even easier by downloading a budgeting app like Kora that will automatically track and categorize your spending. 

2. Set a Realistic Savings Goal:

Start small and aim to save a portion of your income regularly – a few dollars at a time is fine! Even setting aside a modest amount each month can accumulate over time and contribute to the emergency fund's growth. The long term goal is to have three to six months of living expenses saved up. 

3. Automate Savings:

Take advantage of automation tools provided by banks to automatically transfer a set amount of money from a checking account or your paycheck to a separate savings account designated for emergencies. This way you won’t even have to think about it.

4. Prioritize Saving:

Treat saving for your emergency fund as a priority expense. Consider it an essential bill that must be paid each month. By making saving a habit, you can gradually build up your emergency fund.

5. Reduce Unnecessary Expenses:

Take a look at your budget and see where you can cut back on unnecessary expenses. This could mean eating out less, canceling unused subscriptions, or shopping around for cheaper car insurance. 

6. Find ways to make extra money.

If you're struggling to save money, look for ways to make extra money. This could mean getting a part-time job, babysitting, or starting a side hustle (check out our list of recommendations in this blog post).

7. Minimize Debt:

It is important to manage debt effectively while building an emergency fund. Prioritize paying off high-interest debt, such as credit card balances, as this will free up more money for savings in the long run.

Starting an emergency fund can be tough, but it's worth it. Emergency situations are stressful enough without the added pressure of coming up with extra cash to deal with them, so an emergency fund is an investment in your future emotional and financial well-being. 


Here are some additional tips for college students who are starting an emergency fund:

  • Start small. Don't try to save too much money too quickly. Start by saving just $20 or $40 per month.
  • Make sure your money is going into a high-yield savings account so that it’s accumulating interest over time. Many banks have student-specific accounts, but here’s a list with general recommendations.
  • Don't give up. It may take some time to save up a significant amount of money, but keep saving as much as you can and you'll eventually reach your goal.



Building an emergency fund is a gradual process that requires discipline and commitment. Start with small steps and consistently contribute to the fund over time. By doing so, you can establish a solid financial foundation and be better prepared to navigate unexpected financial challenges that may arise during your college years and beyond.



Kora has got your back!

Need help setting up a budget? Kora is the money app for college and was created specifically for students. Kora automatically tracks your spending, gives you personalized reports, breaks your budget down by category, and alerts you when you have low account balances to avoid fees. 

Learn more about Kora and get started on your money app journey by downloading the app.

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