A lot of us can go quite far in life without ever having to deal with a true financial emergency. While that’s certainly not a bad thing, living a financially-sheltered life can lull us into a false sense of security. After all, if you’ve never had to deal with a financial emergency, you might not understand why you should be preparing for one.
But every so often, something comes along that slaps us upside the head and shakes us out of our ignorant bliss. Maybe your best friend just had to replace his shed (and everything in it) after it was struck by lightning and burned to the ground. Maybe one of your uncles just passed away without life insurance, and you’ve had to watch your aunt and cousins struggle to pay for his funeral and final expenses. Maybe you just found out that you’re going to be a father.
Whatever the case, you’ve recently been forced to take stock of your own financial situation, and you’ve come to realize that you’re in no way prepared if an emergency was to strike you or your family.
You’re not alone. According to the Federal Reserve, nearly 40% of Americans wouldn’t be able to pay for a $400 emergency expense without relying on credit cards or other debt. And according to Bankrate, if we bump that expense up to $1,000 and nearly 60% of us wouldn’t be able to afford it. Living in such a precarious financial situation is exactly how so many of us wind up trapped in neverending cycles of debt, and you aren’t willing to resolve yourself to that fate.
You don’t have an emergency fund, but you know you need one. And you need one fast.
Not sure how much you should be saving? Download our free Emergency Fund Calculator!
Laying the Groundwork
Before you dive into building your emergency fund, it’s important that you do a few things first to lay the groundwork for success. The most important are:
- Figuring out how much you need: Most financial experts recommend that you build up an emergency fund that will eventually hold three to six months’ worth of expenses so that you can be secure in case you ever lose your job. But exactly how much money you should have in your emergency will depend on your own financial situation. Use this calculator to figure out exactly how much you should be saving.
- Choosing a realistic starting goal: Saving up three to six months’ worth of expenses is a huge goal, and something that most people do over the course of a number of years. Instead of starting with that huge number, aim for something smaller that you are confident you can reach in a reasonable amount of time—say $500, $1,000, or one month’s worth of expenses. As you reach each goal, choose a larger one to build towards, until you have fully funded your emergency fund.
- Know where to keep your emergency fund: Emergency funds need to be somewhere secure so that you know they’ll be there when you need them. But they should also be in an account that will maximize growth so that they can keep up with inflation and help you reach your goal even faster. A high-yield savings account is one great example of a place you can park your emergency fund.
13 ways to build your emergency fund as fast as possible
Below are 13 strategies that you can use to build your emergency fund as fast as possible. Split between cutting your existing expenses and bringing in more money, you can use some or all of them to supercharge your savings and give yourself the peace of mind that comes with knowing you and your family are secure in case an emergency ever strikes.
1. Go nuclear on your budget.
One of the absolute easiest ways that you can quickly build up your emergency fund is to simply take a look at your existing expenses, cut them back, and then divert that money into your emergency fund. But while cutting back on your smaller expenses can really add up over time, the fastest way to use your budget in your favor is to look for ways to shrink your larger expenses. After all, saving 20% on a $1,000 monthly expense will get you a lot farther than skipping on a $1 or $2 daily expense.
So look at your largest monthly expenses—your rent, your car insurance, your utilities—and find ways to cut back. Some examples might include:
- Downsizing to a smaller (and cheaper) apartment or house, which can reduce both your rent and utility bills
- Adjust your car insurance down now that your car is a few years older and you don’t need as much coverage
- Negotiate a lower interest rate on your credit card if your credit score has improved
- Think about refinancing student loans, credit cards, personal loans, and/or mortgage if your credit score has improved
Doing even just one of the above has the potential to save you hundreds of dollars each month; doing them all could save you thousands. All of that money can be used to build up your emergency fund.
2. Limit yourself to one night out a month.
If you’re a foodie or someone who never seems able to say no to a night out with friends, do yourself a favor and limit the number of times that you go out each month. Going out once a week and spending $25 each time adds up to $1,300 over the course of a year. Limiting yourself to just one night out a month translates into a saving of $1,000 in the same period of time.
3. While you’re at it, stop throwing your money away.
Each year, the average American family of four throws away just under $1,600 worth of food. That’s $400 per person, straight in the trash!
The reasons for this are obvious, and we’ve all fallen victim in the past. Maybe you see something on sale, and buy more than you could ever realistically use, and then have to throw away the excess once it goes bad. Maybe you buy a fancy new ingredient (rainbow chard, anyone?) and are so overwhelmed by not knowing how to cook it that it rots in your crisper. Maybe you buy a whole week’s worth of ingredients with full intentions of cooking every night, but then life happens, you get busy, and you rely on the takeout menu a few too many times.
Whatever the case, if you can stop buying too much food—and actually use what you do buy—you can save yourself a whole lot of money that you can use to shore up your emergency fund.
4. Sell anything you don’t need.
Nearly all of us have stuff that we either don’t need, don’t want, or don’t use. Instead of letting that stuff sit around taking up space in our lives, why not just sell it and put it out of your mind once and for all? Depending on exactly what you have to sell, and how much, you could bank hundreds or thousands of dollars.
Need some inspiration? Some common things you might be able to sell include:
- Your car: If you live in a city and rarely use your car to begin with, selling your car doesn’t just give you a quick infusion of cash: It also saves you money on car insurance and parking/storage fees. Even if you live in the suburbs, if you have multiple cars (including one that you rarely use) consider selling it.
- Tools: A lot of us buy tools, yard equipment and the such with plans to use them all the time, especially once we have a house of our own. But so often they don’t get used nearly enough to make up for the cost. Go ahead and sell the tools you haven’t used in over 2 years, and deposit your proceeds directly into your emergency fund.
- Clothes: How many boxes and bags of old clothes do you have in your basement or attic? Those garments could be keeping other people happy and warm, and make you a little bit richer, if you finally opt to sell them.
5. Cut cable (and other recurring expenses).
Most of us have at least a few recurring monthly expenses that we could cut to instantly free up some money in our monthly budget. Cable is one great example (especially if you only ever watch Netflix or Hulu anyway). Other examples of rarely-used or never-used recurring expenses might include:
- Your landline phone
- A gym or health club membership
- Magazine subscriptions
- Fruit-of-the-month (or anything similar)
Carpooling isn’t just great for the environment: It can be good for your wallet as well. If you live close to coworkers, consider setting up or joining a carpool to substantially cut back on your transportation-related expenses (gas, maintenance, etc.). The same goes for dropping the kids off at school, clubs, or sports.
Live in the city? You might be able to forgo a car altogether (see above) and simply walk or bike to work—which would bring a lot of health benefits along with the monetary ones.
7. Quit smoking, drinking, or other bad habits.
We all have vices. From smoking cigarettes to drinking a bit too much on the weekends to buying lottery tickets or a daily cup of coffee, these seemingly small vices really add up over time. To put the real cost of some common habits into perspective:
- If you spend $8 each day on a pack of cigarettes, that’s $2,920 each year
- If you spend $20 a week at happy hour with friends or coworkers, that’s $1,040 each year
- If you spend $1 a day on lottery tickets, that’s $365 each year
- If you spend $3 a day on your morning coffee, that’s $1,095 each year
- If you do all four of the bad habits listed above, then you’re looking at a whopping $5,420 each year spent on virtually nothing
Instead of continuing to make excuses, finally make a conscious decision to break your habit, and use those savings to establish your emergency fund.
8. Only buy used.
Whether you’re in the market for a new car, new clothes, appliances, or virtually anything else, you can save yourself a whole lot of money by making a commitment to only buy used whenever possible. So, any time you realize that you need to buy something, do yourself a favor and check the following outlets before you decide to buy new:
- Tag sales, yard sales, and garage sales
- Used car dealerships
- Consignment and thrift shops (like Goodwill)
- Classifieds (like Craigslist, your local newspaper, and Facebook Marketplace)
Have a friend who is thinking about selling something that you’re in the market for? You might be able to save even more money if they offer you a friends discount. You get to keep more of your money, and they don’t have to deal with the headache of a haggling stranger.
9. Save your spare change.
Any time you find yourself using cash to make a purchase, consider taking your change (the coins and even the small bills) and putting them in a change jar. At the end of the month, or whenever it’s full, cash it in, and deposit the money directly into your emergency fund. Just remember that machines like Coinstar take a percentage right off the top, so opt for free exchanges when possible. Some banks will cash in your loose change for free, or you could always just pick up some rolling papers and spend an hour on the weekend counting out your money.
10. Use your tax refund.
Any time you get a tax refund, you should think long and hard before you just go ahead and spend the money. After all, it isn’t free money: It’s money that you paid to the government that they’re giving back to you. It’s your money. Don’t squander it!
I typically recommend that people use their tax refund to fund their financial goals, whatever they may be: From saving for retirement to paying down debt to building an emergency fund, there’ no wrong answer. Even if you spend half of the money on something fun, the rest of it can go far in helping you seed your emergency fund.
11. Pick up a second job.
Okay, I get it: No one wants to work more than they have to. But if you’ve got the bandwidth to pick up a second job, that could be just what you need to turbocharge your savings.
Not sure whether or not it’s worth it? If you were to work 20 hours at a minimum wage job ($7.25/hour), and paid 20% interest on the income, after six months you would still walk away with more than $3,000. For a lot of people, that’s a full month’s worth of expenses. And remember, that’s at minimum wage; if you can command a higher wage, you could make even more.
12. Take on a one-time project.
Really don’t want to pick up a second job? You could still bring in some extra dough by taking on a one-time project. Who knows: Maybe you’ll enjoy it so much that you’ll decide to turn it into a full-time gig one day.
Some common “gigs” include:
- Landscaping, whether for a single job, weekend, or season
- Creative work like writing, painting, or design work
- Handywork, like building something for someone or making repairs
- Babysitting, housesitting, or petsitting
13. Married? Tackle it together.
If you’re married and both of you work, you should both be contributing money to your emergency fund. Two people dedicating a portion of their money to the savings goal will help you reach it a whole lot faster than one person, after all.
If you both work and your essential monthly expenses are pretty low, you might be able to hit your emergency fund goal in as little as a few months to a year by following the Starve & Stack strategy. In this strategy, you would use one person’s income to cover all of your expenses, and you’d use the other income to reach your financial goals (whether that is paying off debt, saving for retirement, or building your emergency fund).