We’ve all wondered about how to build an emergency fund at one point or another. Money is already tight enough as it is—between being economical with groceries, paying rent or mortgages, dealing with debt, and a million other expenses, where are you supposed to find spare cash to sock away for the unexpected?
Personally, I’ve learned firsthand that having an emergency fund is worth the effort. Some ways to achieve this include determining your goal, getting a side gig, and negotiating better deals.
So, if you’re looking for practical, real-world tips on how to build an emergency fund, keep reading. I’ll walk through 10 actionable ways to start, make consistent progress, and prioritize your emergency fund.
Before making any significant money moves, though, it’s always wise to consult a qualified financial advisor for professional guidance.
1. Understanding Why An Emergency Fund Is Important
How to build an emergency fund may not seem like a pressing priority when you’re living paycheck to paycheck. But creating that cash safety net is critically essential for a couple of huge reasons:
First, it gives you a buffer against life’s inevitable curveballs. We’ve all experienced unexpected expenses popping up out of nowhere – maybe your car needed a major repair, you had to make an emergency trip to visit a sick relative, or you lost your job unexpectedly.
Without a cash cushion to fall back on, you’re often forced to make difficult decisions like racking up high-interest credit card debt, taking out loans, or depleting your retirement savings. An emergency fund prevents you from going into a financial tailspin when surprises arise.
Secondly, an emergency fund provides profound peace of mind. If you’ve ever laid awake at night, stressing about how you’d cover x, y, and z if something went wrong, you know that constant financial anxiety is debilitating.
But with a nice savings stash, you can breathe easier knowing you’re prepared, come what may. It’s a huge weight off your shoulders.
I can’t emphasize enough how important having an emergency fund has been for my family’s well-being over the years. Take our furnace fiasco from a few winters ago as an example.
(Personal anecdote about a time when the emergency fund really saved you from a difficult situation)
…If we hadn’t had those backup funds to fall back on, we would have been in a dire situation. But because we prioritized building an emergency fund over the years, we could cover that vast, unavoidable expense without going into debt or making tough sacrifices elsewhere.
So, while I’m not a finance professional, I can’t strongly enough the importance of an emergency cash stash. It protects you from life’s inevitable mumbles and bumps, prevents you from resorting to high-interest debt, and provides invaluable peace of mind, knowing you have a safety net. Which brings me to…
2. Determining Your Emergency Fund Goal
You’re convinced that an emergency fund is essential to a healthy financial plan. The next logical question is how much you should try to save. What’s a reasonable goal for how to build an emergency fund?
Most financial advisers’ general rule of thumb is to have enough saved to cover between 3-6 months’ worth of living expenses. But like many personal finance guidelines, those are just rough benchmarks. The ideal emergency fund amount can vary significantly depending on your unique situation and spending habits.
For example, if you’re a dual-income household, you may be able to get by with closer to 3 months’ expenses covered since there’s a fallback option if one person loses their job. But if you’re a freelancer, contractor, or self-employed with irregular income streams, you’ll likely want to build up closer to 6 months’ runway or more.
Your level of job security and the availability of stable employment in your area also plays a role. If you have a very specialized career or work in a volatile industry with frequent layoffs, saving on the higher end of that range is smart.
But if you have an extremely secure government job, you may be able to have a smaller emergency fund without as much risk.
Other factors like your monthly bills, debt load, dependents you’re responsible for, and overall financial obligations can impact your savings goal too. Someone with a mortgage, car payments, student loans, and two kids to support will likely need a larger cash cushion than a single renter with few financial responsibilities.
As for how to calculate that magic number for how to build an emergency fund tailored for you, start by tallying your bare-bones living expenses for housing, food, transportation, utilities, and minimum debt payments.
Multiply that total by the number of months’ worth of expenses you want covered (let’s say 5 months if you want to be conservative). That’s your general emergency fund goal to work towards.
Don’t panic if that lump sum seems unattainable right now – we’ll cover strategies in the next section for accumulating that cash steadily, bit by bit. The key is getting started and making consistent progress over time.
3. Start Small And Make Saving A Habit
We’ve covered why an emergency fund is so indispensable and ballparked a reasonable savings goal for how to build an emergency fund. But here’s where many well-intentioned plans fall apart – actually forming the consistent habit of stashing away cash each month.
The most important piece of advice I can share is this: start small if you need to, but start TODAY. Saving for an emergency fund can feel overwhelming and daunting if you aim too high initially. But anything is better than nothing to get the ball rolling! It’s all about forming the habit.
Look at the financial commitments you’ve already locked into – things like 401k retirement contributions, cable packages, gym memberships, etc. What if you also applied that same automatic, recurring system to build up your emergency reserves? You’d be amazed how quickly those tiny, painless weekly or monthly transfers add up over time.
For example, you automatically earmarked just $25 per paycheck to an emergency savings account. Though that may not seem like much individually, that’s $650 tucked away by the end of the year without any effort.
If paid bi-weekly, make it $40 for over $1,000 in annual emergency savings. And that’s to start – once the automated process is ingrained, you can slowly increase the amount as your budget allows.
Small recurring transfers like that are completely painless if you treat them like any other bill you’re obligated to cover. Many banks will automate this process for you, or you can manually set up transfers into a dedicated high-yield savings account unlinked from your normal checking account.
That way, the money is separate, reserved strictly for emergencies, and not just absorbed into your daily spending.
I get it—you’re thinking, “How can I build an emergency fund with just $20 or $50 here and there?” But trust me, it’s about making a mental commitment to the process. Those little savings create powerful momentum over time—much better than waiting for some future windfall to restart your efforts again.
4. Cut Back On Discretionary Spending
So, we know how important an emergency fund is, how much we should aim to save, and how to make the process automatic by starting small. Those are crucial first steps, but we need to pinpoint areas to reroute extra cash flow toward your emergency reserves.
One of the biggest money-saving opportunities is cutting back on discretionary spending, which covers all those non-essential things we enjoy but can scale back on if needed. How to build an emergency fund gets much easier when you minimise some indulgences temporarily.
Take a hard look at your monthly budgets or bank statements from the past few months. What luxuries, entertainment, meals out, online shopping splurges, memberships, or other “wants” could you pare down for a while? Even modest cutbacks over an extended period result in substantial savings.
For example, something “small” like brewing your coffee at home instead of that $5 cafe drink 5x per week adds up to $100 in monthly savings. Scaling back on restaurant meals by just $75 per month makes a $900 dent in a year.
Maybe you decide to sacrifice your gym membership for doing YouTube home workouts until your emergency fund is set – that’s anywhere from $400-800+ in annual savings, depending on the gym.
It may seem extreme, but there’s no need to become a total recluse either. Look for middle-ground downgrades like swapping your cable bundle for a basic streaming service. Or eat out just once weekly instead of 2-3 times.
Replace traveling with “staycation” activities in your own city. Get creative with inexpensive hobbies or entertainment.
The goal isn’t to live like a monk – to make temporary, reasonable cutbacks that don’t sacrifice your overall quality of life too dramatically while still freeing up decent cash flow. Small downgrades compounded over time can make a much larger impact than you think.
I took a hard look at where all our “fun money” was being spent – concert tickets, nights out at bars and clubs, random impulse clothing and gadget buys, even our cable TV package.
We ended up pausing recurring monthly services we weren’t using, swapping movie dates for lower-key activities, meal prepping instead of ordering out, and finding creative alternatives to entertain ourselves without spending much.
At the end of the day, only you can decide which discretionary splurges are worth keeping versus scaling back. But making concerted trims in lower priority areas for a while is an incredibly efficient route to freeing up significant cash for steps on how to build an emergency fund.
5. Get A Side Gig
If you’ve trimmed your budget to the bare bones but still aren’t making enough progress on how to build an emergency fund, it may be time to look at ways to increase your income streams. Picking up a temporary side hustle can be a powerful way to give your savings a boost.
Now, when I say “side gig”, I’m not necessarily talking about getting a second part-time job at a restaurant or retail store (unless that type of role fits your situation well). There are many opportunities to monetize your skills and unique talents beyond clocking in for hourly shifts.
For example, do you have marketable skills like copywriting, web design, and tutoring, or are you proficient in software programs that others would hire you for? Sites like Fiverr and Upwork allow you to pick up one-off gigs and freelance projects using your existing expertise.
You could get paid for translation services if you speak a second language. Have a knack for social media marketing? Companies will pay you to manage their accounts.
You can also tap into the sharing economy by driving for a rideshare service, renting out your home or extra space on Airbnb when you travel, running errands for Postmates or TaskRabbit, or selling handmade goods on Etsy. Even just using apps like Uber Eats for food delivery can add hundreds of monthly extra income.
Look for opportunities that align with your natural talents and schedule so you don’t spread yourself too thin. For me, the flexibility of doing remote freelance writing and virtual assisting worked perfectly while raising kids. It didn’t feel like “working a second job” since I could do it on my own terms.
While finding a steady recurring side gig is ideal, temporary shorter stint’ can have a place, too while you’re in crunch mode actively building your emergency fund.
For example, you could pick up holiday retail work, do moving jobs or house/pet sitting, serve as an extra hand for caterers during events, run a holiday meal kit delivery service, and more.
The key is tapping into your ingenuity to engineer multiple income streams without overwhelming yourself. An extra $200-500 per month from side work can make a huge dent in how to build an emergency fund over time.
Just be sure you’re intentionally intentionally taking away that extra cash for the fund rather than increasing your lifestyle spending.
6. Negotiate Better Deals
How much are you overpaying each month for various services, memberships, and subscriptions due to inertia and lack of negotiating? You may be surprised at how much you can save just by renegotiating your recurring bills and expenses.
This isn’t just about scouring for lower prices and threatening to cancel, although that can be effective, too. Look for ways to downgrade services you’re overpaying for based on your current needs. For example:
- Cable/internet packages: Are you paying for premium channels or higher internet speeds than you need? Drop down to a slimmer bundle.
- Cell phone plans: Many people unknowingly pay for unlimited data despite modest usage. Renegotiate to a plan that fits your actual habits.
- Subscriptions: From streaming services to meal kits and everything in between, chances are good you’re subscribed to some services you forgot about or no longer need. Audit and cancel what you can.
- Insurance: As your car ages, its value decreases – so you can often reduce comprehensive coverage and save substantially. Also, look into increasing deductibles to see if your emergency fund can cover them.
- Memberships: From gyms to subscription boxes to professional associations, evaluate if you’re still utilizing the benefits to get your money’s worth.
The list goes on and on – those are just a few examples of areas with huge potential for savings if you’re willing to renegotiate more fitting packages and plans for your situation.
In my personal experience, some of the most drastic savings came from simply being willing to make temporary downgrades and live with fewer bells and whistles. For a while, we:
- Reduced our cable package to a fundamental bundle without all the extra channel add-ons
- Switched cell phone carriers to a low-cost provider meeting our basic needs
- Downgraded our internet package to lower speeds
- Called to negotiate lower APRs on credit cards carrying balances
- Increased deductibles on auto insurance policies for older vehicles with lower value
These strategic changes saved us hundreds per month which could be funneled towards our larger how-to-build emergency fund goals. These were usually temporary downgrades that could be reversed once our cash reserves were restocked. It’s inconvenient but well worth it in the long run.
So don’t shy away from negotiating for shorter-term compromises on your various services and memberships. Companies expect customers to renegotiate and will often bend over backward to retain your business with better offers. Staying politely persistent and pumping savings into your emergency fund is smart.
7. Sell Unused Items
Look around your living space – I guarantee there are numerous possessions you no longer need that could be turned into cash for your emergency fund.
If you’re like most people (myself included), your home harbors tons of clutter, outdated technology, clothes you’ll never wear again, jewelry collecting dust, and miscellaneous items just taking up space.
Why not get some value from those dusty belongings instead of hoarding them? You may be sitting on a secret stash of money just waiting to be liberated to accelerate your ‘how to build an emergency fund’ efforts!
I’m a big fan of using digital apps and online platforms like OfferUp, Facebook Marketplace, Craigslist, eBay, Poshmark, and more to sell or ship items locally.
But good old-fashioned garage sales and consignment stores work, too. The process does require a bit of work, like researching correct pricing, writing detailed descriptions, taking clear photos, keeping up with inquiries, arranging meetups for local sales, and handling shipments for online buyers.
But that initial effort is often well worth it for purging unnecessary clutter while generating extra side income. Just be sure to commit any cash you bring specifically to your emergency savings versus absorbing it into your daily finances, where it will inevitably get spent elsewhere.
I like to periodically go through our closets, garage, basement, and storage areas for “low hanging fruit” – easily sellable items like:
- Gently used designer/name brand clothing, shoes, accessories, handbags
- Children’s clothes, toys, books in good condition
- Outdated technology like older smartphones/tablets, gaming systems, computers
- Exercise equipment like treadmills, weights, etc.
- Valuable collectibles and antiques
- Instruments, sporting goods, camping gear
- Tools, yard equipment, workshop items
- Furniture, decor, home furnishings
- Books, movies, music, video games
Of course, only sell belongings you truly no longer want or need. But most of us are guilty of hoarding at least some valuables we could easily part ways with for extra cash.
Having periodic “purge sales” to rid our home of excess clutter has allowed me to periodically bulk up our emergency fund by hundreds or even thousands. It feels incredibly financially and physically free to shed unneeded belongings in exchange for new seed money!
8. Reduce Major Expenses
The tips so far have focused on finding creative ways to free up smaller sums of money here and there to accelerate your emergency fund. But what about making more drastic changes to put severe turbo-boosters for your how-to build an emergency fund goals?
I’m talking about reducing three significant expenses that likely comprise the bulk of your monthly budget: housing, transportation, and food. Making intelligent adjustments in just one of these major categories can potentially supercharge your savings.
For housing, maybe you should consider downsizing to a smaller rental until your cash reserves are solidified. Or, if you own your home, you could look into renting out a spare room or basement to an individual or family member temporarily. Ditching cable and negotiating lower internet/utility packages also leads to big recurring savings.
With transportation, getting rid of a financed car payment can quickly free up $300-600 per month! Switching to more fuel-efficient vehicles or going car-free by using public transit/rideshares in cities can save thousands annually.
And don’t forget food spending. The average household blows thousands yearly on frequent restaurant meals and pricey grocery runs. Fast food for a family of four is roughly $30 a pop just for a single meal!
Transitioning to disciplined meal prepping and banning restaurant spending could effortlessly funnel several hundred per month into your savings.
I know these bigger lifestyle adjustments sound extreme. But making sacrifices for 6-12 months can be a worthwhile short-term trade off to rapidly build your safety net.
There was a period where we nixed most restaurant meals, cut cable completely, and rented out a room in our house to put upwards of $1000 per month into accelerating our emergency fund. The discomfort was temporary, but the payoff was huge.
The bottom line is that if you’re struggling to get financial breathing room for how to build an emergency fund through the other smaller tips, don’t overlook evaluating your three big spending areas. Getting housing, transportation, and food costs down substantially and redirecting those savings into your emergency fund can be a game changer.
9. Redirect Windfalls & Bonuses
Here’s an incredibly simple yet impactful tip for supercharging your emergency savings: whenever you receive a random cash windfall, tax refund, bonus from work, monetary gift, inheritance, etc. – commit to automatically sending a substantial portion straight into your emergency fund.
I know, I know…that juicy windfall burn can be irresistible. Visions of shiny new toys, vacations, and splurges start dancing in our heads. But stay disciplined! Consider sudden lump sums as opportunities to make major headway on your crucial how-to-build emergency fund goals rather than fleeting indulgences.
For example, when that tax refund cheque arrives each spring (assuming you’re receiving one after adjusting withholdings appropriately), immediately funnel 50% or more into your emergency account before it gets absorbed elsewhere. $2,000 tax return? Boom – emergency fund just grew by $1,000 with that single transfer.
Did you receive a bonus at work for hitting targets or making it through a successful year? Don’t let that “free” money slip through your fingers. At a minimum, send enough of it into emergency savings to cover an extra month or two of living expenses.
Or if a generous birthday, holiday, or other cash gift arrives from family, why not honor that generosity by using at least half to continue building your safety net? Those gifts won’t improve your life as much as the peace of mind from having a bulked-up emergency reserve.
Even small spontaneous windfalls like cashing in bottles or receiving rebate cheques can be automatically assigned to grow your savings if you consistently train yourself to do it. Set up rules that anything under $100 gets split 50/50 between fun and savings. Over $100, and the majority of the money is funneled straight into your emergency fund.
Obviously, it takes discipline not to view unanticipated cash as free-for-all fun money. But by mentally reassigning those windfall payments for their actual purpose (boosting financial security), you’ll be able to make surprisingly fast progress toward your bigger goals.
So make it a rule now: any time lump sums of cash fall into your lap, whether $20 or $20,000, a predetermined percentage is automatically allocated to your emergency savings before you start mentally spending it elsewhere.
It’s a zero-deprivation way to continuously build your reserves without dramatically altering your day-to-day lifestyle or earning more money.
10. Earn More From Your Savings
The tips so far have focused on strategies for accumulating money to build an emergency fund through spending adjustments, new income sources, and capturing windfalls. But here’s one more important consideration – are you earning as much as possible on the savings you’ve already banked?
For years, I made the mistake of keeping our emergency reserves parked in a traditional checking or basic savings account at our main brick-and-mortar bank.
Sure, it was liquid and easily accessible. But with interest rates barely scratching above 0.1%, the money wasn’t growing at all beyond what we deposited.
Eventually, I realized I was leaving free money on the table by not optimizing our emergency fund. A separate high-yield online savings account offered easy accessibility like a normal account but much higher interest rates. Compounded over the years, the earnings differences can add up!
For example, you have $15,000 sitting in a basic savings account earning 0.1% interest. After one year, you’d earn about $15. But if that same $15,000 were in a high-yield savings account earning 3%, you’d make over $450! The higher interest rate allowed your money to compound faster.
Of course, lower interest rates in recent years have dampened high-yield savings account returns compared to previous decades. However, even 1-2% APY increases considerably over time when building an emergency fund through steady contributions.
The best high-yield online savings accounts I’ve found typically come from banks/credit unions like:
- Ally Bank
- Salem Five Direct
- Vio Bank
- First Internet Bank
- Comenity Direct
- Sallie Mae
These accounts have minimal fees, are FDIC-insured for security, and are easily accessible online or integrated into apps for seamless banking. You can automate transfers between your main checking and high-yield savings so the money keeps growing without effort.
Once your emergency fund reaches a higher balance, you may consider exploring other low-risk investment vehicles like money market accounts, CDs, or bonds to gradually earn more interest. Avoid venturing into anything overly volatile that could eat into those cash reserves!
The bottom line: make sure you’re maximizing interest earnings on the money accumulating in your emergency fund. An ultra-low-yield account causes your hard work and sacrifices to be diminished.
But by optimizing savings in the right high-interest accounts, you’re ensuring every dollar works as hard for you as possible to fund your safety net.
Conclusion
Accumulating an emergency fund requires discipline, sacrifice, and creativity – but the effort is well worth it. Like an insurance policy, it protects you from life’s inevitable financial storms and provides invaluable peace of mind.
Start small if needed, and be patient yet persistent. Explore different income streams, make intelligent spending adjustments, and capitalize on windfalls. Gradually, you’ll watch your safety net grow stronger until you reach your goal.
Life is unpredictable, but cultivating an emergency fund gives you the confidence to navigate choppy waters. So consider this your lifeboat – build it well, and smoother sailing awaits.
