One thing we can all agree on is that life rarely goes as planned. And just when you feel like you’ve got your finances under control is when the water heater goes out, your car needs new tires, or a pipe bursts. In times like these, you’ll be glad you have savings in the emergency fund. But what do you do once you’ve dipped into the emergency stash? Today we’re talking about just that—rebuilding your emergency fund.
What Is An Emergency Fund?
An emergency fund is a specific amount of money you set aside for when the unexpected happens. Life is full of the unexpected. No matter how much you budget, track, and save, you can’t control when emergencies pop up. An emergency fund is that soft place to land between you and your bank account.
With so many people living paycheck to paycheck (7 out of 10 Americans), saving for an emergency can seem down-right impossible.1 But with a little intentionality and a few sacrifices, it can be done! In fact, 13% of people chose to make saving for emergencies their number one financial goal this year.2
How Much Should You Have In An Emergency Fund?
The specified emergency fund amount in your account all depends on you and your financial goals. We always suggest you start your fund with an initial $1,000. In 2022, Bankrate found that only 1 out of every 4 Americans had enough money saved to cover a $1,000 emergency.3
Saving just an initial $1,000 can be the difference between incurring more debt and financial unrest or feeling secure in an unexpected situation. Once you have saved the initial $1,000, you should consider switching gears to focus on paying off debt. Once you’re out of debt, consider saving three to six months of expenses (that’s what we call a fully-funded emergency fund). This number will be different for everyone, but it’s one that will give you peace when the unexpected happens.
4 Ways to Help You Rebuild Your Emergency Fund
Now that we’ve covered just how important emergency funds are, it’s time to talk about rebuilding that fund after an emergency. It may feel like you’re moving backwards when you have to dip into your emergency fund. But the truth is that your fund is what stood between you and more debt. So now that you’re looking at it that way, it’s time to start rebuilding.
Here’s some ideas to get you started:
1. Add another stream of income.
Adding more income to your household is always a good thing, especially when you’re chasing after a financial goal. Don’t worry, you don’t have to work two (or more) jobs forever, just for a short time. Think about grocery delivery, catering events, or monetizing your hobby.
2. Cut back on extra spending.
Maybe it’s going out to eat, streaming subscriptions, or random apps on your phone. Whatever that extra spending is for you, think about cutting back for a season and saving as much as you can as you work on rebuilding your emergency fund.
3. Shop the sales.
We all know groceries aren’t cheap right now. But that doesn’t mean you can’t save money. Shop the sales at the grocery store, meal plan around what’s in season, and save the rest.
If you’re not making and sticking to a budget, now is the time! A budget helps you stick to your financial goals. When you take the time to plan out where each dollar is going and then track where it went, you’ll be surprised at how much you can save.
Like we said earlier, an emergency fund is a key part of a healthy financial foundation. Once you have your fund in place, you can rest easier knowing that you’re prepared for whatever comes your way. If you’re in the process of rebuilding your emergency fund, a financial advisor can help. Reach out to a SageSpring Wealth Advisor today and we can help you on your journey toward financial success.