Thu Oct 23 2025, by Tyler Gardner

What You Need to Know Before Creating an Emergency Fund

I’m Tyler, a former financial advisor and portfolio manager. Now I create financial content for free, so you don’t have to pay for it.

1. Financial Emergency Statistics

According to a 2022 report by the Fed, 64% of us didn’t actually experience a financial emergency last year.

2. Costs of Emergencies

Of the 36% who did report an emergency, it was often less than $1,000.

3. Low Savings Account Returns

The national average return on savings accounts is just 0.47% per year, while the historical average inflation rate stands at around 3% per year. This means that on average, you're losing about 2.5% per year in your emergency funds.

4. Tax Impact

Additionally, I didn’t even account for the fact that the interest on that emergency fund is taxed.

Alternative Strategy

So what’s the alternative? If you’re worried about having funds for an emergency, consider investing 5% to 10% of your investable assets in a money market fund like Fidelity's SPAXX, while investing the rest in a low-cost index fund like Vanguard's VOO, which historically returns around 7% per year.

Conclusion

We do have an emergency on our hands: most of us are guaranteed to lose money annually in anticipation of something that may or may not happen. If any of this is helpful, sign up for my free weekly newsletter by clicking the link in my bio. Each week, I’ll send you over another money playbook that actually works.

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