In essence, managing your finances sounds like a simple and straightforward task. However, the challenge lies in applying your plans, learning new habits, and integrating your financial strategies in your daily routine. Some people go to great lengths to ensure that they maintain a good credit score, or at least stay stable enough to stir clear from short term loans or debts. Loans are not inherently bad, after all, these services offer to help financially struggling individuals. However, it takes good financial management to make it all work.

One of the things that you can do to avoid making a dent on your credit score, or applying for a short term loan unprepared is to prepare an emergency fund. 

What is an Emergency Fund?

As the name suggests, an emergency fund is an amount of money that you set aside to help you cover unexpected expenses. Unexpected expenses include emergency medical expenses, major house repairs, car repairs, and unemployment.

Credit Score Tips and Emergency Fund FAQs

Here are the answers to frequently asked questions about emergency funds and some tips on keeping your credit score afloat during emergencies:

How does an emergency fund help you maintain a good credit score?

An emergency fund serves as your financial buffer in case you find yourself in the position where you do not have the means to go on. If you have debts or existing loans, an emergency fund can save you from borrowing more. Borrowing more than you can manage can lead to missed payments or loan defaults, which means a lower credit score. Loans are only bad if you cannot manage your funds.

How much should you set aside for your emergency fund?

Three months worth of expenses is an ideal start for your emergency fund, but some would recommend six months worth of expenses for starters. But, no one is going to stop you from saving more. In fact, the more you add to your emergency fund, the better.

Where should you keep your emergency fund?

You can keep your emergency fund in an easy access high-interest savings account so that you can easily access your money when an emergency comes. But keep in mind that you should not keep your emergency funds in the account that you actively use for your expenses.

Step by Step Guide to Building an Emergency Fund

Here are the steps to effectively building an emergency fund:

Step 1: Set a goal

Set a target amount and date, then determine how much you want to save every month. 

Step 2: Automatically move money into your emergency fund savings account.

Determining your target monthly savings for your emergency fund is important because it will help you make plans like automatically transferring money to your savings account. For example, if your employer offers direct deposit, you can try and ask them if they can break up your monthly savings into separate accounts. 

Step 3: Don’t take your tax refund for granted.

You get a chance to file for a tax refund once a month. Your tax refund can give your emergency fund a boost. Consider depositing your tax refund directly into your emergency account. 

Step 4: Assess your progress.

You need to make sure that you are saving and your current methods are working. Make the necessary adjustments if you are not satisfied with your progress.


Emergencies are unpredictable, help yourself by building an emergency fund. You can take care of your living expenses and maintain a good credit score if you manage your finances and keep some funds for the rainy days.

The opinions expressed in the Blog are for general informational and entertainment purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific investment product.  It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

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