The bedrock of a sound budget is a fully funded emergency fund that can cover 3-9 months of living expenses. This is important in the event that you lose your job, or have other emergencies arise. For many, it takes quite a while to stash away that much cash. Then, boom. An emergency hits, and you deplete it. Thank goodness you had that fund as a safety net, but what happens after you use it? Once you’re back on your feet, you’ll need to work to rebuild it for yourself.
For most people, rebuilding an emergency fund happens slowly, just like building it in the first place did. This time though, you definitely have a better appreciation for how important that fund is, so you won’t mind putting in the hard work it will take. Here are five tips to help you get back on track.
1: Set out a new budget.
During your rough patch, you probably revised your budget to make your money stretch. Now it is time to revise yet again to account for changes, and rebuilding savings. Whether you lost your job, or had a large, one-time expense that depleted your emergency fund, now that you’re past that situation, you’ll need a new guide. Maybe you have a more steady income again, but you also have new savings goals.
Make sure to include saving as a part of your budget, and make those payments to your emergency fund automatic. Once you’ve reached your goal, you can revise your budget again.
2: Find more income.
While you’re working to rebuild your emergency fund, you may need to find a side hustle. This can be a quick way to grow your savings, and doesn’t have to be permanent. Some people create their own side hustle by leveraging skills they have, or a hobby or craft they love. Or, performing services like babysitting, or dog-walking in your free time can be a quick way to gain some more income. No matter what, the quick injection of extra income can boost your emergency fund rapidly.
3: Temporarily cut luxuries.
You’ve probably been brown-bagging it and forgoing expensive coffee already. Another place to look for cuts is subscriptions. Monthly subscriptions for services like video streaming, gaming, premium cable channels, gym memberships, mobile phone services, ebooks, and other can really add up! On average, consumers are paying $237 every month on subscription services. Free up some cash by checking your bank and credit card statements for subscriptions you’re being charged for and cancel the ones you no longer use. But, remember, everyone needs a few things that bring them joy, so don’t be ruthless in your cuts – cutting back instead of cutting out helps strike a balance.
4. Put some goals on hold.
When you’re bouncing back from a tough time, you may need to put some of your larger savings goals on hold. Sure, saving up for a down payment on a house or paying off student loans in full are important goals, but your safety net comes first. While you’re rebuilding your emergency fund, divert all savings there. Once it is re-established, you’ll re-focus your efforts on other long-term savings goals.
5. Don’t forget to adjust.
A budget should never be set in stone. Your financial life changes, sometimes monthly, so it’s important to take a look at where you are at the end of each month and adjust accordingly. Maybe you’ll find that you spent less than you thought you would in certain areas. Great! You can divert those funds to your emergency savings fund, and reach your goal even faster. Or, maybe you’ll identify areas where you spent more than you should. Either way, keeping a close eye on your budget, and adjusting along the way, will help you reach your goals faster.
What tips do you have for rebuilding an emergency fund?