How to Build an Emergency Fund
While Paying Off Your Mortgage
Owning a home is a major financial responsibility, and if you have a mortgage, you already know how much of your budget goes toward monthly payments. But what happens when unexpected expenses—like medical bills, car repairs, or job loss—come up? That’s where an emergency fund comes in.
Balancing mortgage payments while building an emergency fund might seem impossible, but with the right strategy, you can do both. Here’s how to save for a rainy day without falling behind on your mortgage.
1. Set a Realistic Savings Goal
The first step is determining how much you need in your emergency fund. A good rule of thumb is to have three to six months’ worth of living expenses saved. This should cover your mortgage, utilities, groceries, insurance, and other essentials if you lose income or face an unexpected financial hit, such as a medical emergency or major home repair. The exact amount you need depends on your personal situation—if you have a stable job with reliable income, you may be comfortable with three months’ worth of expenses. However, if your income is irregular or you are the sole earner in your household, aiming for a larger cushion, closer to six months or more, is a safer bet.
If that number feels overwhelming, don’t let it discourage you. It’s okay to start small. Even setting aside $500 to $1,000 can provide a safety net for minor emergencies, such as a car repair or a sudden medical bill. Over time, these savings will grow into a solid financial buffer that can help keep you afloat in tough times.
2. Review Your Budget and Find Areas to Cut Back
To save money, you need to free up cash in your budget. Take a close look at your monthly spending and see where you can make small sacrifices. Some common areas to cut back include:
- Dining out – Cooking at home just a few more times a week can save you hundreds of dollars each month.
- Subscription services – Review your streaming, gym, or meal kit subscriptions and cancel any you rarely use.
- Impulse purchases – If you tend to shop online or make spontaneous buys, try a 24-hour rule before purchasing anything unnecessary.
- Energy efficiency – Lowering your thermostat in winter, turning off lights, and using energy-efficient appliances can reduce utility bills.
Redirect the money you save into your emergency fund. Even small changes can help you build savings over time.
3. Automate Your Savings
One of the easiest ways to build an emergency fund is to set up automatic transfers to a separate savings account. This removes the temptation to spend the money and makes saving effortless.
If your paycheck is direct deposited, consider setting up an automatic transfer of even $25 or $50 per paycheck to your emergency fund. Over time, these contributions will grow without you even thinking about it.
4: Make Extra Income Where You Can
If your budget is already tight, bringing in extra income can help you save faster. Consider:
- Freelancing or side gigs – Writing, graphic design, tutoring, or even pet-sitting can bring in extra cash.
- Selling unused items – Go through your home and sell things you no longer need on platforms like Facebook Marketplace or eBay.
- Part-time work – If feasible, picking up a few hours at a second job can give your savings a boost.
Any additional income you earn should go directly to your emergency fund rather than getting absorbed into daily spending.
5. Build Your Fund without Sacrificing Mortgage Payments
Your mortgage is a top priority, so don’t sacrifice payments to fund your emergency savings. Instead, find a balance:
- If you get a bonus or tax refund, split it between savings and extra mortgage payments.
- If you’re ahead on payments, focus more on savings until you reach a comfortable emergency fund.
- If you’re struggling to keep up with both, start small—just $10 or $20 per week into your savings is better than nothing.
The goal is to ensure you’re financially secure without putting your home at risk.
6: Keep Your Emergency Fund Accessible but Separate
Your emergency fund should be easy to access in a crisis but not so accessible that you’re tempted to dip into it for everyday expenses. A high-yield savings account is a great option because it earns interest while keeping your money available when needed.
Avoid investing emergency savings in stocks or long-term accounts that could lose value or be difficult to withdraw from quickly.
7. Adjust as Your Finances Change
Life changes—your income may increase, your expenses may shift, or unexpected costs may arise. Reevaluate your emergency fund regularly and adjust your contributions as needed.
If you get a raise or pay off a debt, consider increasing your savings rate. Likewise, if you dip into your fund for an emergency, prioritize rebuilding it.
Final Thoughts
Saving for an emergency fund while paying a mortgage isn’t easy, but it is possible with careful planning. Start small, cut unnecessary expenses, and be consistent with your savings. Having a financial safety net can bring peace of mind and protect your home and family from unexpected financial stress.
Ready to buy a home? Our team of Mortgage Experts can help!