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4 Things College Students Should Know About Emergency Funds

College student with hands on hips, frowning as she looks at her dented car

In addition to creating a budget to track your spending, you should also consider building a college emergency fund for unplanned expenses. Here’s how to get started.

In college, the financial circumstances of each of your classmates can be vastly different from your own. Some college students can rely on their parents to pay for all of their college expenses. Some qualify for scholarships and financial aid. Others depend on student loans or income from a job to pay for their education. Many students use a combination of these resources.

However, college students should be responsible money managers regardless of the source of their funds. In addition to creating a budget to track your spending, you should also consider building a college emergency fund for unplanned expenses

1. Every college student should have an emergency fund

What is an emergency fund? An emergency fund is a separate savings account designated specifically for emergencies or unexpected expenses. For example, you might dip into your emergency fund if your laptop malfunctions or is stolen, you need an additional textbook to succeed in a course, or you have urgent medical bills to cover.

2. Not every unexpected expense is an emergency

Having an emergency fund should be your first step, but knowing when — and when not — to use it comes with experience. There will be times during college when your friends want to eat out or ask you to travel with them over spring break. While it may be tempting to borrow from your emergency fund, these situations are not emergencies.

The purpose of your college budget is not only to set aside money for fixed college expenses (your rent, car payments, college tuition, etc.), but also for your variable expenses (entertainment, gas, clothing, etc.). If you know your friends have a habit of eating out, make a restaurant category in your monthly budget. If you want to go on a spring break trip, start saving money for the vacation months in advance. 

So, when is the right time to use your emergency fund? When the expense is both a surprise and a necessity. A death in the family requiring an immediate plane trip, a car accident, or a job loss all qualify as both unexpected and valid reasons to dip into your emergency fund.

3. Starting your college emergency fund is simple

When you first start an emergency fund, it’s wise to create a separate bank account for it, which might prevent you from dipping into the fund more often than you should. Whenever you run into extra money, such as a gift or financial aid refund, consider putting at least some of it into your emergency savings. Of course, you should also add to your fund regularly so that saving becomes a habit.

Financial expert Rachel Cruze recommends saving from three to six months of living expenses in your emergency fund. However, the amount of money you aim to have in your emergency fund is up to you and will depend on your personal circumstances. The Consumer Finance Protection Bureau recommends thinking about unexpected expenses you’re incurred in the past and use that as a guideline.

Any amount you can save is helpful. If you have a part-time job, have a certain amount automatically transferred from your paycheck to your emergency savings account. If your income fluctuates weekly, try saving a small amount each week. Even saving $10 a week adds up to $500 after a year.

4. A student emergency fund will benefit you long after you graduate

Putting money aside each week for an emergency that might never happen may seem overly cautious. However, when you prepare for unexpected expenses in the short-term, you put yourself in a better position to handle emergencies later in your life, like home repairs or vet bills. Having an established emergency fund may also help you avoid having to use a credit card or getting a loan for an unexpected expense. 

Your finances may be limited as a student, but starting now to build your emergency fund may help you combat financial instability later on. Bankrate’s 2023 Annual Emergency Savings Report found that more than half (57 percent) of U.S. adults could not afford a $1,000 emergency expense.

Building a stable emergency fund in college takes discipline and responsibility. But after it’s established, you may find comfort in knowing that you can handle surprise expenses, and that you’re developing good financial habits you can carry into your life after college.

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