How To Build Up An Emergency Fund: 7 Full-Proof Tips

In today’s uncertain times, having a financial safety net like an emergency fund has become more crucial than ever. With the pandemic causing economic instability and job insecurity, unexpected expenses can easily throw your budget off track. Then, how to build up an emergency fund?

And don’t forget, life is full of unexpected surprises, and without proper preparation, these surprises can wreak havoc on our budgets and leave us stressed.

Before you save any money for anything, you need to save money for emergencies that can occur. You need to build up an emergency fund.

You can (and should) save money and should start now.

An emergency fund should cover 3-6 months of living expenses. But how about having one year’s worth of living expenses?

It sounds like it’s time-consuming to build up an emergency fund and needs a lot of money to put aside.

Is it worth the effort?

It all starts with carefully planning, adopting clever financial habits, and setting aside a portion of your income every month.

Consistency is key here! By gradually growing your emergency fund, you’ll gain a sense of security and peace of mind, knowing you have a cushion to fall back on in times of uncertainty.

So, let’s explore some practical tips and tricks on how to build up an emergency fund and weather any financial storm that comes your way. 

How Much Emergency Savings Should You Have?

The amount of money needed for an emergency fund depends on:

As mentioned above, the general rule of thumb says you should have at least 3-6 months’ worth of your essential monthly expenses.

So, you should know precisely how much money you need for your essential expenses, which can include:

But you never know what will come up, and life happens, so even a year’s worth of emergency savings isn’t a bad idea.

So, below are the tips on how to build up an emergency fund.

1. Come Up With The Big Number

Setting a realistic savings goal is crucial when building an emergency fund.

Start by carefully analyzing your monthly expenses. Consider bills, groceries, rent or mortgage payments, and other essential costs.

Aim to save at least three to six months’ worth of living expenses, as this provides a sufficient buffer to cover unexpected job loss, medical emergencies, or unexpected repairs.

For instance, your essential expenses are 300 euros a month. Then, you calculate 300×3=900 euros. Or, you calculate 300×6=1800 euros.

But what if your essential expenses are 500 euros a month? Then, you calculate 500×3=1500 euros. Or 500×6=3000 euros.

Also, by committing to this initial step, you establish a solid foundation for your emergency fund.

It sets you up for success and gives you peace of mind, knowing that you have a safety net in place for any unforeseen circumstances that may arise.

2. Break The Big Number Into Mini Achievable Goals

Let’s get back to the example above.

For instance, you’ve decided to save three months of living expenses in your emergency fund, and your essential monthly expenses are 300 euros a month. Also, you give yourself a timeline of 1 year to accomplish the goal.

When you put the math to work, it looks like this: 300×3=900 euros. The number 900 represents how much you’ll have in your emergency fund after you’re done with saving for it.

Next, you’ll save 900 euros in one year, which is 12 months. So, you divide 900 by 12 and will get the number 75.

That’s 75 euros to put into an emergency fund each month until you get the amount of 900 euros. Or, in other words, until you reach your savings goal.

Putting aside 75 euros may seem like a lot of money, especially if you’re on a low income, then give yourself a timeline of 2 years or 24 months.

This time, the 900 euros you’ll divide it with 24, and you’ll get the number 37.5. And that’s 37.5 euros to put aside each month until you get the amount of 900 euros.

Even if 37.5 euros is still a high number, you can always build an emergency fund of 900 euros within three years.

And you already have an insight on how to build up an emergency fund, even within three years.

So, did you make a plan on how to take your savings for emergencies off the ground? 

3. Save As Little As Possible – Than Having No Savings At All

On the opposite side, the numbers above may still be high for some people, which is just fine. Sometimes, it’s more critical to meet ends.

But here’s the thing. Little savings are better than no savings at all.

As mentioned above, start with as little as possible, even if that means 1, 2, or 3 euros this month, the next month, and the next month, etc.

Remember: slow and steady wins the race. Build an emergency fund at your own pace.

Get yourself a piggy bank or a money-saving jar and put it there.

It’s more important to try and then try some more and keep trying until you reach your saving goal for financial emergencies.

It may seem like you are decades away from figuring out how to build up an emergency fund.

But here’s the thing. This financial goal isn’t unachievable or unattainable.

It’s quite the opposite.

Start with little, regular contributions and move from there. Then, always look for ways to boost your savings by earning more money.

Yes, little regular contributions can do wonders. A little, plus a little, plus a little, equals a fully funded emergency fund.

Start with reducing your expenses, boosting your income, or both, as mentioned above.

It’s up to you to change your financial situation because no one will do it instead of you.

And you can build a better future for yourself and your loved ones.

4. Make It Part Of Your Budget

Building an emergency fund is a financial goal. It is a savings goal, to be more precise, and should be part of your monthly budget.

So, make your savings for emergency funds part of your budget by adding a budget category called savings for financial emergencies or emergency fund savings. Also, it’s essential to allocate a specific amount of money each month towards it.

Once again, let’s get back to the example above.

So, first, you come up that you’ll need 900 euros in your emergency fund, and to reach this savings goal, you divide it by the number of months you plan to save for it, which is 12.

So, you divide 900 by 12 and get the number 75. In other words, that is the monthly amount you need to set aside.

You’ll make it part of your monthly budget by writing it in your budget, but that’s not enough.

Once again, create a separate category for your emergency fund in your budget and prioritize it by setting aside the designated amount (from the example above, 75 euros) each month.

The key is to treat this as a non-negotiable expense, just like your rent or utility bills.

Monitor your progress regularly and adjust if needed. Remember, consistency is key, so stick to your budget and make saving for emergencies a top priority. 

5. Put It Into A Savings Account

Put your savings for an emergency fund in a savings account. The money should be easily accessible and liquid.

You can open a savings account in the bank where you already have a transaction account or choose another bank for that purpose.

If you can, choose a savings account that offers interest rates so your savings can grow faster.

Also, you should have easy and quick access to that savings account when an emergency occurs. That’s why opt for a savings account that best suits your needs (even if that means the account offers low-interest rates). Sometimes, having easy and quick access to your money is far more important than taking advantage of the power of compounding.

A good rule of thumb is to put your savings in a bank different from the one you already have a transaction account so you may avoid the temptation of spending the money for financial emergencies.

Also, automating your savings makes the process effortless and ensures consistent growth. Make sure to arrange an automatic transfer from your transaction account to a dedicated emergency fund account, and watch your savings gradually grow without even noticing it.

This approach eliminates the temptation to spend the money, as it is automatically deposited into a separate account.

6. Rebuild When Necessary

For instance, Julia has a fully funded emergency fund with six months of living expenses in it. Due to the recession, she has lost her job and has been jobless for three months.

So this means she has been relying on her emergency fund for three months, and somehow, she managed not to spend the entire amount of money in the emergency fund.

But, anyway, she’s aware that she needs to rebuild her emergency fund once again because she’s also aware that life happens and you never know when an emergency will strike again.

So, what will she do to rebuild it again? And what would you do to rebuild it again if you were in Julia’s place?

The answer is simple: repeat the process above, all of it.

You’ve already been there. And you know what it looks like, only this time you’re not starting from scratch, but from experience.

And it is a relief when you don’t have to worry about money in those life-changing and unexpected moments.

I hope the tips above will help you on how to build up an emergency fund. 

7. Boost Your Income

Building an emergency fund is essential for financial security, but it does require a proactive approach.

You reduce your monthly expenses, and then there’s that much money toward your savings. It may also mean cutting back on unnecessary expenses or finding ways to save money in your day-to-day life.

But when you boost your income, then there’s a chance of growing your savings faster.

For instance, you receive a regular paycheck from your full-time job. But, it’s important to explore opportunities to boost your income, such as freelancing or taking on part-time jobs.

By doing so, you can allocate more money towards your emergency fund.

Even small contributions can add up and accelerate its growth, so every little bit counts.

It also means you can gradually build a substantial emergency fund over time.

Being proactive and dedicated to saving will help you reach your goal faster and provide peace of mind, knowing you have a financial safety net in case of any unforeseen emergencies.

Boost your income so you can figure out how to build up an emergency fund.

Improve Your Savings Habits

A habit is a habit. You can get into the habit of saving money. And you can get out of bad spending habits.

One of the most effective ways to consistently build up your emergency fund is by adopting the habit of saving money.

But how to get into a habit of saving money if you’ve never done it before? And how can you start your money-saving journey?

By treating your savings as an essential bill, you prioritize it, just like rent or utilities.

First, you should make it part of your monthly budget. When you write it down, it may be easier to start saving money.

Second, you should start following the rule: ‘Pay yourself first’, which means first put aside a certain amount of money in a savings account. And then, spend the rest of it, aka you spend money on needs and wants.

But if you’re on a low income, there’s also a way. You can get yourself a piggy bank or a money savings jar. Then, whenever you have any leftover money, put them there.

And when you have enough money in the jar, take it into a bank and put it into a savings account.

By the time you fill in the piggy bank, you can also look for ways to boost your income and speed up the savings process.

Over time, this consistent saving habit will help you achieve a solid emergency fund for any unexpected expenses that may arise.

So, you can improve your savings habits and figure out how to build up an emergency fund. 

When To Use Your Emergency Fund?

Your savings for emergencies should be easily accessible and liquid, which means they are within reach. And the temptation to spend the money is high. So, while you’re building your emergency fund, you should also improve your self-discipline.

But when to use your emergency fund?

Financial emergencies are typically dreadful, unplanned, unexpected expenses that occur when you at least expect them to happen. You didn’t see them coming through, and you can’t avoid them, ignore them, or say no to them.

Make sure you use it when an emergency occurs, like:

So, no one can predict global pandemics, wars, car accidents, earthquakes or stormy weather that can destroy your home. That’s why an emergency fund is there.

So use them only in the event of true financial emergencies.

You know you need to find the amount of money to cover them and go through that painful process. But with an emergency fund, the whole thing is a lot easier.

Remember: you should build a sinking fund for a vacation/travel or a car. Also, never – under any circumstances – use your emergency fund for unexpected shopping trips because that’s definitely not unexpected expenses.

So, there you have it seven tips on how to build up an emergency fund.

Final Thoughts

Figure out how to build up an emergency fund as soon as possible. Start today, even if you’re not ready.

And if you get any bumps in the road and fail, get up, brush yourself off and keep building it. You create it when you don’t need it, so it’ll be there when you need it.

Building up an emergency fund is essential for your financial well-being. It acts as a safety net, offering peace of mind and security during unexpected situations.

By implementing these clever tips and making them a part of your everyday life, you can slowly but steadily create a strong safety net for yourself.

Starting as early as possible is vital, as it allows you to achieve financial resilience sooner.

So why wait? Begin your journey to financial stability today and create that emergency fund.

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