How to rebuild your emergency savings

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It’s been a rocky couple of years for many consumers’ personal finances, due to the economic challenges of decades-high inflation and a global pandemic. Many have had to dip into their emergency savings just to get by.

2022 could prove to be just as financially challenging. Experts predict the prices of goods and services will continue to rise sharply this year, as worker shortages and supply-chain issues persist. The surge in prices comes at a time when less than half of U.S. adults surveyed reported not being able to pay an unexpected $1,000 expense from savings. Many have said their biggest financial regret is not saving enough money for emergencies.

What is an emergency fund?

An emergency fund is money in the bank for the purpose of covering unplanned expenses. It can be your lifeline when faced with surprise home repairs, a big medical bill or a death in the family. It can also help you get through a sudden job loss by covering living expenses like housing, transportation and food.

How much should be in your emergency savings

Experts suggest stashing away at least three to six months’ worth of household expenses in an emergency fund.

“That sounds like a lot — and it is — but getting to that goal is a process,” says Amy Maliga, a financial educator with Take Charge America, a Phoenix-based nonprofit credit counseling agency. “If you’re starting from scratch, we recommend an initial savings goal of $500, which is enough to cover many common, smaller emergencies. Once you hit the $500 mark, keep going. Remember, the point of emergency savings is to stay out of debt by avoiding the need to use credit cards for unexpected expenses.”

Those who are self-employed may want to save more than three to six months’ worth of expenses to cover times when income fluctuates. Retirees whose income is generated from investment accounts would also benefit from extra savings, as well as people with medical issues whose insurance might not fully cover things like surgeries or medications.

Setting aside additional funds could also provide peace of mind for anyone during hard times such as a pandemic or a recession.

Where to keep your emergency fund

When it comes time to start stashing money away for your emergency fund, look for a high-yield savings account with few or no fees. High-yield savings accounts are liquid, which means you can quickly access your money when it’s needed.

“While it’s great to earn interest on your emergency fund, your primary goal should be to keep the money safe and liquid,” says Scott Schleicher, a financial planning specialist group manager and senior financial advisor at Personal Capital. “Some accounts will have withdrawal limits, restrictions or even hidden bank fees, so just make sure you’re aware of that before moving your money.”

Opening the account at a bank or credit union that’s insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF) will ensure your money is kept safe.

How to restart an emergency fund

Revising your budget is the first step toward rebuilding your emergency savings. Here are some simple steps to get you started:

1. Make a budget

List where your money is going, including line items for things like housing, transportation, food, clothing, entertainment and so on. Making a list will help you identify how much you can add to your savings each month, so a line item for your emergency fund should be included. Determine your emergency fund goal, whether it’s three to six months’ worth of expenses or more.

If you already have a budget document in place, it’s good to reevaluate it periodically, as income and expenses can change over time.

Bankrate’s Home Budget calculator or a budgeting app can make this seemingly daunting process easier by helping you keep track of your spending.

2. Trim expenses

One way to save money is to streamline your expenses. Identify unnecessary expenses, which could include frequent dining out or coffee runs, unneeded insurance, or unused subscriptions to magazines or streaming services.

“Analyze your monthly spending and find things you want to cut back on,” says Davon Barrett, lead advisor at Francis Financial. “Too much delivery? Big cellphone, Wi-Fi and cable bills? These expenses are all somewhat easy to reduce or find alternatives for once you’re aware of them.”

3. Automate your savings

One way to make saving money easier is to set up regular automatic transfers to the savings account that holds your emergency fund.

“One of the easiest ways to save money, regardless of your budget, is to make your savings automatic,” says Valerie Moses, a senior relationship manager for Addition Financial Credit Union based in Lake Mary, Florida. “If your employer allows you to direct deposit your paycheck into multiple accounts, set aside a portion of that paycheck to be deposited into a savings account so that this money is out of sight, out of mind.”

You can also set up an automatic transfer of funds from checking to savings each month.

“Having that money in savings is a great way to ensure that you won’t be tempted to spend it unless you really need to,” Moses says. “During an unprecedented time like a pandemic, emergency funds are arguably more important than ever.”

4. Find ways to earn more money

Sean Fox, co-president of Freedom Debt Relief, recommends earning additional income to devote to the fund.

“For example, some people sell unneeded items online or hold a (COVID-safe) yard sale,” Fox says. “Other people have part-time jobs, provide dog walking services, do yard work, tutor or help with IT services.”

Other possible ways to add to your existing income include:

  • Freelance writing: If you’re adept at crafting prose or knowledgeable on certain topics, writing on a contract basis can be a lucrative gig that might even turn into a full-time job.
  • Graphic design: Like freelance writers, graphic designers can work on a contractual basis and set their own hours as they design logos or websites for clients.
  • Driving for Uber or Lyft: Driving for a ride-hailing service can provide flexible hours, allowing you to work around other employment.
  • Food delivery: Like ride-hailing drivers, those who deliver food get to choose their own hours when working for services like Uber Eats, DoorDash, Grubhub and Instacart.
  • Babysitting: Watching others’ children can be a lucrative side-hustle for those who enjoy caring for kids and have some experience doing so. Various websites and apps exist for connecting parents with sitters.
  • Pet sitting: Animal lovers can earn some extra money by looking after others’ pets while they are at work or on vacation.
  • Getting a roommate: If you have extra space in your home, consider renting a room to a trusted friend or relative. Be sure to come up with a contract, signed by both parties, that lays out the terms of the agreement.

Bottom line

Establishing an emergency fund, or rebuilding an existing one, is a key to financial stability. Having money in a liquid savings account will give you peace of mind, knowing you won’t need to go into debt when faced with unexpected expenses.

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Written by
Karen Bennett
Consumer banking reporter
Karen Bennett is a consumer banking reporter at Bankrate. She uses her finance writing background to help readers learn more about savings and checking accounts, CDs, and other financial matters.
Edited by
Wealth editor