An emergency fund is money that is set aside in case something unexpected comes up – like a car repair, property repair, medical expense, or the loss of a job.  25% of Americans do not have ANY emergency funds and instead rely on borrowing money from relatives or using credit cards in case of an emergency.  60% have less than $500 set aside for minor calamities.

If you live with your parents rent-free or for only a small amount of rent each month, you may think an emergency fund is not necessary in your situation.  If your parents are rich and are willing to bail you out of every problem you face, then you may be right.  But if your parents aren’t wealthy and they expect you to take care of problems that arise in your life, then you need an emergency fund.

Some experts say you should keep six months of income in savings, but for millennials with high student loan payments, that may be difficult.  Dave Ramsey recommends starting with an $1,000 emergency fund and then increasing the emergency fund to 3-6 months of income AFTER all of your debt is paid off.

An emergency fund is a necessity – no matter how much someone plans and budgets, surprises happen.  A car accident, broken leg, or job loss could put you and your family in financial turmoil if you have nothing in savings.

Car repairs

If you live with your parents, I’m going to take a guess that your income is low and your student loan payments are high (otherwise, you’d probably be living on your own).  If you’re struggling financially, and your parents can’t afford to help, you’re probably driving an old car.  That old car may need expensive repairs, and you might not be able to afford a new/used car.

My 16 year old car recently hit 100,000 miles and the wear and tear is starting to show.  If I had put 100% of my income toward making extra payments on my student loans, I wouldn’t be able to afford repairs – which would be dangerous and would cause more problems (certain types of car issues can become worse if you continue driving the car without getting the issues fixed).  This is a huge part of why my husband and I keep at least $1,000 in an emergency fund at all times (we try to keep it at $2,000).

Medical expenses

If you’re young and healthy, you may not give much thought to medical expenses.  But what if you broke your leg or got in a serious car accident?  Do you know how much your deductible is?  Or how much your coinsurance is?  Do you know much an ER visit or hospital stay would cost you?

If you don’t know, take a look at the benefits information you probably received when you started your job.  Familiarize yourself with the plan details.  Call your insurance company or your company’s HR department and clarify anything you don’t understand.

Remember that accidents do happen and it’s best to be prepared.  Make sure you have enough money in your emergency fund to at least cover your deductible.


The economy still isn’t in the best shape, and I know quite a few people who have been laid off from their jobs unexpectedly.  If you live with your parents, you may not have to worry about making rent, but who is going to make your student loan payments if you lose your job?  You can switch to income-based repayment if you have to (assuming your student loans are public, not private), but that means you’ll be paying more in interest over the long run.  Making the switch can also be a slow process, so make sure you have enough in your emergency fund to cover at least two to three months of student loan payments.


If you live with your parents, you may think that an emergency fund is not necessary.  But if you’re living paycheck to paycheck, what will happen if an unexpected expense comes up, such as a car repair or medical bill?  Putting these expenses on a credit card is not a good idea.  Create an emergency fund instead – this will allow you to pay for the expenses without going into debt.