How to Build an Emergency Fund

Why an emergency fund is worth it — and how to start growing yours.

The Federal Reserve Board reported recently that 40% of people in the U.S. said they would have trouble covering a $400 emergency. Now think back to the last time you had an emergency or unexpected expense. Maybe it was a car repair or medical bill or even paying all your bills until you found a new job. Were you confident you had enough money to cover it?

Setting aside hundreds or thousands of dollars for an emergency – and not using it – can seem like a challenge when you have bills and other responsibilities. But building an emergency fund can be done in phases over time, and you can make small changes now to get start growing your fund. Every dollar you save now can help cushion when the next emergency happens.

1. Open and set up automatic deposits to a savings account.

First come up with an amount you can afford to save and put toward an emergency fund every month. Consider saving this money in a separate account to help you stay focused on building those savings and avoid spending it. Automatic deposits can make saving easy. For help figuring out what to pay first, check out resources from the Hands on Banking® financial education program.

2. Reduce your spending.

If you need to change your spending so you have enough money to put aside, start by reviewing your expenses – large and small. For example, the total cost of dining out may be larger than you think. With the average household spending $3,365 a year on eating out, cutting just two meals out a month (meals on average cost $12), saves around $288 a year.¹ Another quick way to cut spending is to cancel any memberships and subscriptions you use infrequently or don’t need. Reviewing and cutting your expenses doesn’t have to be a sacrifice, but rather a chance to adjust your spending and saving in line with your priorities.

3. Find ways to make extra cash.

There may be opportunities for easy income in your garage, closet, or old storage areas: consider selling old – and unwanted – stuff for a quick stack of cash that you can put in your emergency fund savings account. Online auction sites and marketplaces can help sell your stuff or just use the traditional yard sale. Other work opportunities, whether extra hours or one-off projects, can help bring in extra money to build your emergency fund plus support other financial goals.

4. Save “extra” money.

Have you received a tax refund, gift, bonus, or raise recently? Consider putting that extra cash into your savings account. Remember – keeping it out of reach of your checking account means it’s harder to spend and there’s a higher chance of saving it.

5. Create a savings challenge

You might have started with a smaller savings goal so your fund could grow little by little. Challenge yourself to make a bigger deposit like $50 next month instead of the $25 you deposit on a monthly basis. Then make the same goal again in a few months or even increase it a little. Any amount you contribute is a step in the right direction.

By their nature, emergencies happen when you don’t expect them, but planning for them just in case can help you handle them. That’s why an emergency fund is there. If you do have to tap into your emergency savings, that’s what it’s for, but get back on track by committing to building it right back up.