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From missed flights to lost luggage to canceled hotel reservations, it’s not unusual for unforeseen expenses to pop up when you’re traveling.

If you’re traveling full-time as a digital nomad, it’s essential to safeguard your bank account in case you run into trouble.

That’s where an emergency fund comes in. Read on to learn what exactly an emergency fund is and how to build one in six easy steps.

What exactly is an emergency fund?

An emergency fund is a savings account you set aside for, well, emergencies.

You don’t touch the money in this account unless an unexpected emergency comes up (sadly, a last-minute ticket to a music festival in Ibiza doesn’t count).

Routine expenses, such as your biannual travel insurance bill or trip to the dentist don’t really count either. Even though these expenses might not happen often, you can still predict and prepare for them.

Instead, an emergency fund serves as a cushion in case disaster strikes. You suddenly lose your job, for instance, and need to draw on your savings until you get a new one.

Or you experience a health emergency with costly medical bills. Or a big storm derails your travel plans and you need to find a last-minute hotel near the airport until the weather clears.

Situations like these are stressful enough without having to worry about how you’re going to pay for them. If you have an emergency fund to cushion your fall, you at least won’t have to worry about covering the costs of these setbacks.

How much should you have in your emergency fund?

Most experts recommend saving between three and six months’ worth of living expenses in your emergency fund. That way, if you lose your job, you’ll be able to get by for a few months while you search for a new one.

Everyone’s monthly living expenses will look a little different depending on their lifestyle. Take a look at your big spending categories — accommodation, food, insurance, travel costs, etc. — and calculate what that number would be for you.

If saving three to six months’ worth of expenses feels impossible, start smaller. Set your own benchmark, whether that’s $1,000 or just $100 to start.

Even if your emergency fund can’t carry you through several months of unemployment, having even a little savings set aside could be a huge help.

where to park emergency fund 1

6 steps to building an emergency fund to get you through tough times

So how can you effectively set aside money into an emergency fund? Here are six strategies for achieving your savings goal.

1. Open a separate savings account at your bank

One challenge of building an emergency fund is letting your money sit somewhere untouched. When you have cash on hand, it’s tempting to spend it.

To protect your savings, open a separate account at your bank. Name this account “Emergency Fund” or “Hands Off” or whatever else will remind you that the money is not for everyday expenses.

By earmarking a separate account for your emergency fund, you’ll have a built-in security measure against your own temptation to spend.

As for where to park your emergency fund, look for a bank that offers a high-yield savings accounts with an interest rate of 2.0% or more. Ally Bank, for instance, has one of the best online savings accounts for emergency funds with an interest rate of 2.2% (as of Feb. 2019).

By choosing a high-yield savings account for your emergency fund, your money can quietly grow in your account even after you’ve hit your savings goal.

2. Set up automatic transfers on a biweekly or monthly basis

If you have a regular income, consider setting up automatic transfers from your checking to your savings account. That way, the money will move out of your everyday account before you can spend it, and your savings will grow without any more effort from you.

Take a look at your income and expenses to determine how much you can afford to set aside on a biweekly or monthly basis. Then look at your savings goal, and estimate how long it will take you to reach it.

If you’re hoping to save $1,000 in six months, for instance, you’ll need to set aside about $167 per month or about $42 every week. If that amount is too steep, you might need to give yourself extra time; e.g., set your goal to $1,000 in 10 months.

If you’re a freelancer with irregular expenses, automatic transfers might not be the best idea. After all, you don’t want to accidentally overdraw on your checking account and incur bank fees. But if you can set up regular transfers, your savings can run on autopilot.

3. Get a bird’s-eye view of your budget

Although making a budget probably isn’t your idea of a fun time, it can be really useful if you’re trying to build an emergency fund. And it doesn’t take very long, either.

Just sit down with a pen and paper or Google spreadsheet and write out your income and expenses. Figure out how much money you have coming in each month, and identify your major spending categories.

Budget-tracking apps like Mint and YNAB can also be a huge help. You just enter your account information and set goals, and these apps tell you if you’re on track to meeting them.

By seeing where your money is going every month, you’ll gain a greater sense of control over it — rather than feel like it’s controlling you.

best online savings account emergency fund

4. Change your spending habits

Assuming you don’t win the lottery, the only way to make more room in your budget is to decrease your spending and/or increase your income.

Making a budget is a great start, as it helps you identify areas where you overspend and can cut back. But changing habits doesn’t happen overnight, and it’s totally natural to experience setbacks.

If you’re serious about spending less, take a look about your spending triggers. If you shop when you’re feeling down, for instance, try to replace this habit with a free or low-cost activity, like hiking or cooking.

And don’t beat yourself up if you fall short of your goals. Managing money isn’t just a numbers game; there are lot of emotions involved, too. Gaining self-awareness is an important step in disrupting old habits and adopting new ones.

5. Find ways to increase your income

If you can both decrease your spending and increase your income, you’ll suddenly have a lot more room in your budget and be able to save much faster.

Maybe you can actively pursue a promotion at work that comes with a higher income. Or go after some big fish clients and blow past your revenue goals for the month.

If you’re open to a new job, search for an opportunity that lets you make more money while maintaining your location independence (here are some ideas for digital nomad jobs!).

And if you’re secure in your job, consider setting up a side hustle for some additional income. Maybe you could work as a freelancer and find side projects through Fiverr or Or you could use TaskRabbit to find small jobs in your area, or teach skiing lessons or yoga classes on the side.

If you’re struggling to save and afford your monthly expenses, look for ways to increase your earnings and break the paycheck-to-paycheck cycle.

6. Funnel a windfall of cash into your savings

While the chances of winning the lottery are slim to none, you might get a windfall of cash in the form of a bonus from work or an inheritance from a long lost aunt. Or maybe that startup you invested in got sold for a big profit, or your random cryptocurrency coins suddenly shot up in value.

If you get an unexpected windfall of cash, you might be tempted to jet-set off to Monaco. But if you’re aiming to solidify your emergency fund, instead put some or all of that windfall into your savings account. That way, you can shore up your savings in one fell swoop.

Protect yourself financially in case of an emergency

Hopefully, you won’t run into any emergencies on your travels around the world. But stuff happens, and sometimes there’s no avoiding Murphy’s Law (“everything that can go wrong will go wrong”).

That’s when having an emergency fund goes from being a chore to being a lifesaver. You won’t have to worry about overdrawing on your bank account or maxing out your credit cards, and instead can put all your energy toward resolving your emergency.

For even more tips on mastering your personal finances, head to this guide on how to manage your money as a digital nomad.