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How to build an emergency fund

How To Build an Emergency Fund

Updated on September 30, 2021

 Personal Finance

Life is filled with unexpected changes. You never know when the unexpected can happen. It could be a medical bill or job loss or something as small as a lost phone. That is why everyone needs to save for the unexpected.

An emergency fund can keep you afloat when you are unable to earn an income due to a medical emergency or a job loss without going into debt. When you have nothing in reserve, you could start living on your credit card(s), or maybe even look for a short-term loan to cover the costs of an emergency. But an emergency fund gives you a financial cushion and way to not go further into debt.

So what steps do I take to start building up an emergency savings fund? Here are a few ways to find money to build an emergency fund, whatever your current income.

Build an Emergency Fund Now

Save First

The key thing to savings is to get into the habit of saving money that you can set aside to put in your emergency savings fund. But you may be wondering how you can find enough spare cash in your budget to set aside for a rainy day. The best way to do that is to put aside a certain amount towards your emergency fund each time you get paid. Saving first at the beginning of the month or each time you get paid will gradually build your fund over time.

To make the process easier for you, set up an automatic transfer from your salary or checking account to your savings account each time you get a paycheck. If you find that you are not missing that money in your budget, you may increase the amount you are setting aside for a rainy day.

Stash Your Windfalls

If you get a rebate check, a tax refund, a cash gift, bonus, or any extra cash that is outside of your regular earnings, use some or all this unexpected money to build your emergency savings fund. So, resist the urge to spend cash gifts, bonuses, or other amounts that are outside of your normal earnings because you probably were not counting on this money as part of your monthly budget.

A tax refund can give a real boost to your emergency fund. The average tax refund is in the thousands, which can get your emergency savings funds off to a great start. Stash it immediately in your emergency savings fund since you will hardly miss it. Save it and other 'found money' to build your emergency fund and keep watching your fund grow.

Start Small, But Start

The key to building an emergency fund is to start setting aside a little each month. If you do not have much to save, it does not matter. Start small, but start whatever your current income. Contributing a small percentage of your income from each paycheck, for instance, is one of the best ways to do that.

It will feel good when you see at least a little in your savings. And you will soon be motivated to try to save more towards your emergency savings fund. You might start seeking out more ways to save. The important thing is just to start, whatever your income and you will reach your goal over time.

Make Extra Cash

You could look for ways to generate extra cash to stash your emergency fund. If you have a marketable skill, you could earn extra money using that skill. And you can make money from the comfort of your home these days thanks to the internet. Here are some ideas to generate some extra cash.

Work Overtime

- To build up the emergency fund faster, you can try to work a little overtime. Save the extra money you earn working overtime to stash in your emergency fund. Get a second job on the side if you have time.


- If you have a flair for writing, you can write articles, blog posts or web page content for businesses and individuals to make money immediately. Many websites accept articles on a wide variety of topics from contributors. You can also create profiles on freelancing sites and writing jobs sites to bid on different jobs or pick up writing assignments directly, depending on the sites.

If you have accurate and fast typing speed, then you can work as a data entry worker. Can you speak a second language? Then you could become a translator. If you have good organizational and communication skill, then you could make money by helping small business owners and individuals on the web by becoming a virtual assistant.

Become A Home-Based Employee

- Many companies hire home-based workers in customer service, sales, virtual assistance, transcription and more areas. If you have the time, you may be able to work part-time for one of these companies, depending on your skill set.

Sell Things Online

- You could also sell your unwanted items on eBay or other online marketplaces. Another option is to buy new and used products cheaply and resell them for a profit.

Save Spare Change In A Jar

Stash your change. Every little bit helps. Do not spend any coins you get. When the jar fills up, put the money in your savings account towards your emergency fund. This can add up faster than you think. You could save several hundred dollars or more over time by collecting coins.

When you get $1 or $5 small change after breaking a $20 or $100, keep those $1 and some of those $5 bills in an envelope or jar at home. Save them to put in your emergency fund. It will add up quite quickly.

Cut Back On Costs

If you cannot find spare cash to set aside towards an emergency fund, look at how you are spending money now. Can you find some things that can be cut back? There are some ways to trim your weekly or monthly spending such as, cooking meals at home, eating out less, avoiding take out coffee, etc.

Cut down on your grocery bill. Buy the stuff you need. Cut your cooling and heating bill by installing a programmable thermostat and programming it as and when necessary. Do you need to eat out three times a week? You will save quite a bit if you prepare even a fancy meal or two at home instead of going out for an expensive dinner once or twice a month.

You could cut down on gas and car maintenance costs if you get in the habit of using public transportation for your commuting needs. Get on the bike if you live relatively close to your workplace to cut down on your commute costs. If you quit smoking or drinking, you could save a considerable amount and put it into savings.

Trim unnecessary monthly bills. Do you need to pay for premium cable channels that you never watch at all? Trim as much as possible and take that same amount to stash in your emergency savings.

Set A Goal

If you are living paycheck to paycheck, you are probably not looking to build a fully-funded emergency fund at once that can cover six months' worth of expenses. But you do not have to save up that much cash at once.

One great way to start building your emergency fund is to set reasonable milestones. Make it your first milestone, for instance, to have an emergency fund of just $250 or $500. When you reach that first milestone in a few months or even less if you are in a good income situation, you will be glad that you have at least some savings that can make a huge difference when you have an emergency.

The key is to set a monthly savings goal to build your emergency fund. You could contribute a small percentage of each paycheck to your emergency fund. This will get you into the habit of saving regularly and will grow your fund over time.

Where to Put Your Emergency Savings Fund?

You will want to earn interest on the money you put aside for your emergency fund and at the same time to withdraw your money quickly when you need it the most. Savings and checking accounts do not offer great interest rates now. Some checking accounts even charge you for account usage. But your money will be safe in a savings or checking account and you will be able to withdraw it easily.

If you want to earn higher interest, you can open a high-yield savings account or money market account to use for your emergency fund. If you are looking for financial security, put your savings into a savings account so you can withdraw your funds without hassle in case of a real emergency. Your money can also grow a bit while it sits there. If you are looking for growth in your savings fund, put it in a money-market account or high-interest bearing online savings account. The bottom line is the best place to put your emergency fund is where your funds work for you.

An emergency fund will provide you with peace of mind knowing your life will not be disrupted if an emergency arises. If something unexpected happens and you do not have anything in reserve, you could rack up debt on your credit card or maybe even consider a personal loan or instant loans to cover the expenses of a real emergency.