How to Save for an Emergency Fund on a Tight Budget

Life happens; but not always the way we expect. You would be hard pressed to find many young families that haven’t experienced some sort of financial emergency – a job loss, a big medical bill, a disabling injury or illness, or a major repair bill. That’s why any financial planner will tell you that, if you do nothing else, you need to save for an emergency fund. 

What is An Emergency Fund?

An emergency fund is money you save and set aside that’s specifically for unplanned expenses or financial emergencies. Examples of emergency needs include car repairs, home repairs, medical bills, or a loss of income. Think of it as money outside of your normal spending and savings that are accessible in a pinch.

How Much Do You Need in An Emergency Fund?

At a minimum, your emergency fund should have enough cash reserves to cover six months of living expenses. For every child in the family, you should increase it by six months. That might mean setting aside several hundred dollars a month to start building the cushion you need. But, if you’re like many young families who live paycheck to paycheck, you may think it’s out of reach. Think again. Even starting with a small amount of savings can provide relief in an emergency.

How Do You Build Your Emergency Fund?

There are many different strategies that people of all financial situations can use to get their savings started towards an emergency fund. Depending on your financial situation, just one, multiple, or all these strategies can help you kickstart your savings.

1. Set a Consistent Savings Routine

   • It is much easier to build savings when you're able to get in a consistent cycle of putting money away. Set a savings goal for your emergency fund, figure out how to make consistent contributions, regularly monitor your progress, and enjoy watching your emergency fund grow.

2. One-Time Savings Opportunities

   • Take advantage of those times of year when you get an influx of money like tax refunds, bonuses, or holiday gifts. While spending is tempting, saving some or all of this windfall could help quickly boost your emergency fund towards your goal.

3. Automatic Savings

   • As stated before, consistency is key to building any savings over time, so finding ways to automatically save will lead to success. Set up recurring transfers or direct deposits to your emergency fund account to build your fund without the hassle of thinking about it each time.

Having your emergency fund established for financial hardships can help avoid relying on other forms of credit or loans that can turn into debt. Build your fund and don't be afraid to use it when necessary. You will establish saving habits that will continue to improve over time so you can build your fund over and over as needed.