How to build an emergency fund, even a small one

A broken phone. A medical bill. A stipend that arrives late. An urgent trip home. Unexpected costs happen to everyone. Without money set aside, one problem can quickly become several: missed rent, borrowing at a high cost, or stress that affects your studies.

An emergency fund is money you keep aside only for genuine, unexpected needs. It does not have to be large to make a difference.

A useful test: is it unexpected, necessary and urgent?

• Yes: repairing the phone or laptop you need for your studies, an urgent medical cost, replacing a lost document, covering rent while a payment is delayed.
• No: a sale, a new outfit for an event, a holiday. These are wants or planned costs, and belong elsewhere in your budget.

One widely used rule of thumb, from the UK's government-backed MoneyHelper service, is to keep three to six months of essential outgoings (your needs) in savings you can reach quickly. MoneyHelper also stresses that any amount you save helps.

For many students, three months of essentials is a long-term goal, not a starting point. So build it in stages:

1. First milestone: enough to cover one week of essentials.
2. Second milestone: one month of essentials.
3. Long-term goal: three months or more, if your circumstances allow.

Reaching the first milestone matters most. It covers many common emergencies and builds the habit.

• Start with a small, fixed amount. Even $5 or $10 a month adds up, and a small amount you keep saving beats a large amount you can't sustain.
• Save first. Move the amount as soon as money arrives, as described in our guide to building your first budget.
• Save part of any extra money. When you receive a gift, a freelance payment or a refund, put some of it straight into your fund.
• Look for one small saving. A smaller data bundle or one fewer takeaway a week could fund your emergency savings.

Your emergency fund should be:

• Separate from your spending money, so you don't use it by accident.
• Safe, with a licensed bank or mobile money provider rather than cash at home.
• Quick to reach in an emergency, without penalties for taking money out.

This could be a separate savings account, a second mobile money wallet, or a separate account with your bank. If you prefer to avoid interest for religious reasons, ask your bank whether it offers a Sharia-compliant savings option. Our guide to Islamic finance basics looks at this in more detail.

The fund is there to be used. Using it for a real emergency means it worked. Afterwards, go back to your regular amount, or increase it for a few months, until the fund is back to where it was.

In this imaginary example, saving $25 a month builds $150 by month six. A $120 phone repair in month seven is paid without borrowing, and by the end of the year the fund has recovered to $180.

Many readers are also the person relatives call on in an emergency. It can help to decide in advance how much of your fund, if any, you can use for family emergencies, and to keep that separate from what you need yourself. Our guide to supporting family while you study looks at this in more detail.

• I know what counts as an emergency for me.
• I have set a first milestone, such as one week of essentials.
• My fund is kept separately from my spending money.
• I move a fixed amount into it as soon as money arrives.
• I know how I will rebuild it after using it.