Doctor listening for heartbeat in ambulance
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You never know in life. One second you’re packing for a business trip. The next moment you’re in the intensive care unit clinging to your life.

That’s what happened to Kelly Mahan last August. Mahan, then 37 years old, thought she was having a migraine headache. Then she crashed to her kitchen floor, where she remained for seven hours.

A few hours later she needed a life-saving craniotomy for a bilateral aneurysm rupture. That procedure – and the fact that her hemorrhage clotted over itself – probably saved her life.

“I should have been dead before I hit the ground,” Mahan says.

Mahan, now age 38, is one of the countless examples of why planning for the future is so important. And while not every unexpected event will be as serious as Mahan’s, an emergency savings account is a vital part of this plan.

And yet, according to a recent Bankrate survey, 23 percent of Americans do not have any emergency savings.

“My whole thing was I at least knew that I had a savings account,” Mahan says. “… I knew that I had a substantial amount of money saved up, so I didn’t freak out about it when I was in the hospital not working.”

Chart: How much do Americans have in emergency savings?

Steps to build your emergency savings

An emergency savings account is meant to cover the unknowns in life. It’s recommended that you have at least six months of reserves in an emergency savings account. Only 29 percent of adults have that much, according to the Bankrate survey.

Mahan, who recalls missing only a day of work years ago because of an automobile accident, never expected to miss approximately two months of work. Her emergency savings account gave her comfort and helped her focus on her recovery.

The best way to start building your emergency savings is to automate it by having a portion of your paycheck go into your emergency savings account. This way, you won’t be tempted to spend the money first.

“I knew that I had a substantial amount of money saved up, so I didn’t freak out about it when I was in the hospital not working.”

Also think of ways to kick-start your emergency savings. For instance, you can have a garage sale and deposit the proceeds into your savings fund, says Carol S. Craigie, CHFC, CFP. Craigie says that if you have a side hustle, putting all your side hustle money into an emergency savings account can add up quickly.

Even if the side hustle is only for a short period of time, any little bit helps. Create a budget and audit your current expenses to find items that aren’t used or necessary, and direct that money into your emergency fund. Making small sacrifices — such as bringing lunch to work or making coffee at home — and pocketing the savings can help you grow your emergency fund.

Your emergency savings should be easily accessible, but not in a place where it would be easy to use for other expenses. Consider opening an account at an online bank for your emergency fund. The account could be a savings account, money market account or short-term CD. Online banks also typically offer higher yields than traditional banks.

Account for worst-case scenarios

Another lesson in Mahan’s experience is to always have enough money set aside to pay for health insurance. Calculate how much COBRA would cost now, so that if you lost your job you wouldn’t be caught off guard by this expense. If Mahan didn’t have insurance, the expenses would have been catastrophic. Her 15-day stay in the ICU, without insurance, would have cost around $300,000. That doesn’t include the life-saving surgery or other costs.

It’s one thing to have a goal to set up an emergency savings account. But if consequences are not a part of that plan, then it’s easy for there not be a sense of urgency.

Some types of questions Craigie asks are:

  • What will happen if you don’t have this emergency fund, and your child is in intensive care – and may live or die – and you’re out of vacation days?
  • Your parent is in the hospital, dying in another state. How are you going to handle this?
  • You lose your job and health insurance, and you have to choose between your health insurance or keeping your house. What is your choice going to be?

Use emergency funds only for true emergencies

Mahan had a real emergency – an unexpected event that isn’t easily predicted or likely to occur. But if you use this account for non-emergencies, it won’t be there if you ever really need it.

“Christmas is not an emergency,” Craigie says. “If you own a car, it’s going to break. If you own a home, (it’s) going to need repairs. And so, making sure that you’re planning for those variable expenses are kind of one of the ways of making sure that you get and keep your emergency fund.”

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