Easy Steps to Building an Emergency Fund on a Tight Budget

by Chantal King
Easy Ways to Build Emergency Fund on Tight Budget photo

Creating an emergency fund is one of the smartest financial gifts you can give yourself. Start with these easy ways to save up an emergency fund, even on an already tight budget, and get started saving today!

How do you create an emergency fund when there’s no money left at the end of the month?

Have you ever asked yourself this question? Saving money can be a challenge no matter how much money you make. There will always be one more unexpected bill, one more item to buy, or one more payment to make.

Yet, creating a cushion, or an emergency fund, is one of the smartest financial gifts you can give yourself. Here are some tools to get you started.

1. Change your mindset.

You’ll likely need to cut back on some spending in order to build your emergency fund. That thought alone is one of the reasons many of us do not have an emergency fund.

So don’t equate saving with deprivation or you’ll never reach your savings goals. You won’t have to penny pinch forever if you can gradually build savings and get control of your finances.

If you’re having trouble with a mindset shift, try this advice for developing a frugal attitude.

2. Pay yourself first.

If you wait until everything else is paid, your money will be gone at the end of the month and you’ll never build your emergency fund.

Designate a percentage of your first paycheck of each month, or a set dollar amount, as emergency fund savings. Try for 10%, but even a little adds up over the long haul.

This payment to yourself is as much a part of your budget as your electric bill. Treat it that way.

3. And use automatic deposit to transfer that monthly savings into a special emergency fund account.

Out of sight means out of mind. Using direct deposit you probably won’t even miss it. But your emergency fund will grow each and every paycheck. It’s like putting pay yourself first on autopilot!

Not sure you can pay yourself first on your tight budget? Find out how to make “pay yourself first” work for you.

4. Don’t trade debt repayment for saving.

Trying to balance debt repayment and saving can be tough on a tight budget, especially when it comes to credit card debt.

But while building your emergency fund, you probably still want to pay more than your credit card minimum payments in order to reduce the time it takes you to get out of debt and the amount of interest you pay. (If you want to crunch the numbers to determine the best use of your extra money, we walk you through the math in Build Emergency Fund or Repay Debt First?.)

Chances are, that debt is why your budget is so tight right now. So don’t neglect your debt. No debt means peace of mind and more money to save toward a fun goal, such as a vacation.

And an emergency fund will go a long way in keeping you from getting back into debt.

These tips for finding money for savings while paying down debt can help help you balance the two.

Get proactive about tackling your debt.

Get the book How to Conquer Your Debt No Matter How Much You Have and begin the journey to financial freedom today!

5. Once the debt is gone, keep making those payments to your emergency fund.

You were doing fine without that money to spend before. Why waste it now? Put it in your emergency fund and you won’t need to use your credit card the next time a money emergency occurs.

6. Curb spending by enforcing a 24-hour waiting period.

If you’ve ever wondered what you were thinking when you bought an item you know the problem. Even walking out to your vehicle in the parking lot and asking yourself if the item is a need or a want can cut down on your impulse buys. You’ll be surprised how much money you’ll have for your emergency fund.

7. Leave your credit cards at home.

Studies have shown that plastic is much easier to spend than actual cash. So if you shop with cash only, you will not go over budget. Once the money is gone, it is time to head home.

8. Throw some fun and entertainment into the budget.

Even if it is only a trip to the ice cream shop, you have to allow yourself some fun. Turning saving into a chore will only backfire.

9. Where you keep your emergency fund is as important as building it.

You don’t want to spend it on non-emergencies. Set up a special account, perhaps even at a different bank. Making the money harder to withdraw will help you think twice about what an actual emergency is.

Get the interest you deserve.

Compare savings and money market account rates with this simple tool from a Dollar Stretcher trusted partner.

10. Set mini goals and reward yourself when you reach them.

Start by aiming to save $200. When you reach that make $500 your next goal. Then $1,000. It is much easier to work toward a goal than the vague notion of “saving more money.”

When you reward yourself, your determination grows to reach the next goal.

11. Remove temptation.

Quit window shopping. At the mall or online. Don’t look at the sales ads if you can’t pass up a bargain, even if it is something you don’t need. Don’t go new car shopping if you know you can’t afford another payment.

Marketers specialize in finding ways to separate you from your money. Don’t make it easy for them.

12. Once your emergency fund starts growing, recognize it’s value.

You know that life is full of unexpected financial challenges. Car repairs, home repairs, unplanned medical bills. You know your emergency fund will be there for you when you need it.

Don’t overuse it or treat it carelessly.

13. Enjoy compounding interest.

Look for a savings plan that gives you interest and the higher the better. Your fund will grow that much faster.

But I Don’t Know Where to Find Extra Cash

Maybe your budget is so tight that you couldn’t squeeze an extra nickel out of it no matter how hard you tried. So where will you find extra cash for an emergency fund?

Let’s explore some of the opportunities that could work for you.

Cut food costs

Perhaps you’ve cut your grocery budget to the bone. But have you really? We offer a very affordable ebook filled with 300+ tips that can help you cut the food budget even further.

Tips Food eBook Ad photo

Use a cash back credit card

Are you sure that you’re using the right credit card? If you’re not getting cash back, you’re giving away free money that could be going to your emergency fund.

Most of us use our credit cards almost every day. Buying everything from snacks to 70″ TVs. Why not get a free discount when you do?

The best way to find the best cashback card for you is to compare offers. You could be creating a monthly source of income and never do another thing to earn it!

Or get a credit card with a lower interest rate

Sometimes you can’t help it. You have to pay the credit card minimum. If so, you could save money by reducing your interest rate. Especially if your credit score is above 650.

You can compare cards and find a lower interest credit card here.

Create a second income stream

Maybe you really want to give that emergency fund a boost! A little here and there isn’t enough for you. Then you might want to start a side gig. Here are some side gigs to consider that can earn you extra cash.

Creating an emergency fund is possible at any income level. As the fund grows, your peace of mind will, also.

We all know that emergencies do happen, and being prepared for it can make all the difference between weathering the storm and being overwhelmed. If you don’t have an emergency fund yet, today is the day to begin building one.

Reviewed January 2021

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