When I was in college, I had a bit of a spending problem. I loved to buy new clothes, go out to eat and go to concerts.
Even though I tried to budget, I always wound up overspending.
The one financial rule I did follow? I always had a small emergency fund, with at least $100 in it. That emergency fund kept me from doing any drastic when I needed money and didn’t want to ask my parents for it.
Learn what an emergency fund is and how to build one in college.
How Much to Save
A basic college emergency fund should have at least $100 in it. That can cover small expenses like a parking ticket, a trip to the doctor’s office or a week’s worth of groceries if your student loan deposit hits your bank account late.
If you can afford it, try to have closer to $500 in your emergency fund. This may cover a last-minute flight home for a family emergency, replacing something if it’s stolen from your dorm or a major car repair. If you can’t afford that, then start with $100 and build from there.
How much you need also depends on your support system. If your parents pay for your living expenses, you may not need as much of an emergency fund. If you’re an independent student, then you need to be your own backup plan.
Even if your parents support you financially, it’s still good to have your own emergency fund. It can be embarrassing to ask your mom or dad for money, especially if it’s not a good reason. It also teaches you how to be responsible for your own decisions and doesn’t mean you’re relying on your parents.
How to Save an Emergency Fund
Saving an emergency fund is hard, especially if you don’t have a regular income and don’t have any savings.
The easiest way to create an emergency fund is to a windfall, like a tax refund, scholarship or birthday check from Grandma. If you know your aunt will give you a check for Christmas, stash it in an emergency fund.
If you don’t really get windfalls or it’s six months before Christmas, your next step is to look at your income, expenses and determine how much you can save. You may have to buckle down and reduce spending for a few months to save an emergency fund.
I earned money in college by donating plasma for $20 a session or participating in psychology studies. If your goal is to save $200 in an emergency fund, these side hustles are an easy way to make money without getting a part-time job or driving for Uber.
What Happens Without an Emergency Fund
When you don’t have an emergency fund, you’re living life on a tightrope. Anything could go wrong, and you’d have to scramble for a way to pay for it.
When you need money quickly, you might resort to borrowing it from your parents, friends or other relatives. If they say no, you may decide to open a credit card or take out a title loan. Both of those options come with high-interest fees and can end up costing you more than you borrowed.
Some students resort to selling prized possessions like their Xbox or iPhone. One friend of mine almost considered selling her laptop and using the computer lab for homework. When you need to sell an item, you usually don’t get as much as it’s worth, especially if you pawn it.
Emergency funds also prevent unnecessary stress and anxiety. For example, if your tire gets slashed and you can afford to replace it immediately, you won’t miss class trying to donate plasma to buy a new tire.
How to Use an Emergency Fund
Once you set up your emergency fund, it’s important to learn how to use it correctly. An emergency fund is for surprise expenses, like a root canal, flat tire or visit to the ER. It’s not to be used for a trip to Panama City Beach for spring break or a set of Airpods.
Spending money from your emergency fund should be a rare occurrence. If you know that your car needs an oil change, you should plan for that in your budget and not use the emergency fund.
I used my emergency fund in college to pay for a towing fee, a speeding ticket and a parking ticket (are we sensing a theme?). One time I lent a friend $100 because his apartment flooded and he needed to move to a new place.
His old landlord was taking forever to return his security deposit, and he didn’t have enough cash for his new apartment’s security deposit. I used money from my emergency fund to pay for that and refilled my savings account when my friend paid me back.
You should keep your emergency fund in a savings account separate from your regular checking account. It can be too tempting to use your emergency fund when you check your balance.
If you have a Chase checking account, keep your emergency fund in a Bank of America savings account. Ideally, this should be a high-yield savings account with an interest rate of 1% or more and no fees.
You can pick an online bank or one with local branches. The only difference between a savings account at a brick-and-mortar bank and an online bank is the ability to talk to someone in person and deposit cash.
How an Emergency Fund Helps After College
Having a small emergency fund will also help after you graduate. Moving out on your own is expensive and you’ll need to have a bigger emergency fund. If you already have a small one, you’ll be building from a good base.
When I graduated, I barely had an emergency fund. I had to borrow money from my parents for the security deposit on my first apartment. Though they were glad to help, I was totally embarrassed. I wanted to prove I was an adult, so I committed to saving three month’s worth of expenses.
Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.