6 Moves To Rebuild Your Emergency Fund to $10K -- Even on a Tight Budget
Gen Z has a median emergency fund of just $400, according to an Empower survey. Yet, financial experts suggest saving enough to cover three to six months’ worth of expenses. That’s not always practical or even necessary early on in adulthood, however.
Even if you did save a significant amount—say, $10,000—life happens. Sometimes, things you could never have expected or prepared for come up and that money disappears.
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Fortunately, you can rebuild even if you’re on a tight budget. Here’s how.
1. Pay Yourself First With Automatic Transfers
The first step to rebuilding is to automate your savings.
“Most people try to save whatever is left at the end of the month, but for most of us, there is nothing left over,” said Michael McAuliffe, president and founder of Family Credit Management. “A much better approach is to pay yourself first by setting up an automatic transfer into an online high-yield savings account every payday.”
Start with small numbers. Even saving $50 a month equates to $600 that first year, and that’s without the interest you’re getting. Say you use an account with 4.00% APY. After one year, you’ll actually have $663. After five years, you’ll have $3,370. Increase your savings during that time and you’ll rebuild to $10,000 sooner than you know.
2. Save the Amount You Choose Not to Spend
The latte factor is a simple budgeting rule that basically says not to go to the cafe. But you don’t have to follow that. Not spending also doesn’t necessarily equate to saving.
So instead, intentionally save what you would have otherwise spent.
“If you’re about to have a $5 coffee, a $15 lunch or a $30 impulse purchase on Amazon and decide not to, you should feel great about that decision,” McAuliffe said. “Pull your phone out and transfer that amount into your savings.”
3. Set Short- and Mid-term Goals
Saving $10,000 all at once is daunting, so break it down into smaller goals.
“Set a goal to get to $1,000, then $2,500, then the halfway mark of $5,000 and so on,” said Adam Coarts, owner and senior agent at Goldfinch Financial Group. “When you hit a new number, you can see you are getting closer and you will stay motivated.”
4. Have an End Date in Mind
It’s fine if you don’t necessarily make it, but having a timeline can help keep you on track.
“Set a date as to when you would like to have the $10,000,” said LaQueshia Clemons, financial therapist at Freedom Life Therapy and Wellness. “So if it’s in a year, you want to do the math on how much money you will need to deposit each pay period for the next year.”
Say you want to have the $10,000 saved within three years. You’d need to save $3,333 every year, or $278 a month. That might not be feasible if your budget is tight, so adjust the timeline. Give yourself, say, five or even six years.
And remember, your budget won’t be tight forever. As you start earning more, save more. Maybe you can only save $60 every month this year. Next year, perhaps you can increase that to $100.
5. Cut Expenses
The average U.S. household spends $6,545 monthly, as per the Bureau of Labor Statistics (BLS). You might have a much lower cost of living.
Either way, review your bank and credit card statements. Write down every purchase. See if you can cut costs on things like rent. Then get rid of the things you don’t much need or care about.
“Cancel unused gym memberships or streaming services you no longer watch. Make coffee from home instead of buying it on the way to work,” said Coarts. “Prepare meals so you don’t go out to eat for lunch or dinner.”
Say you cut unused subscriptions totaling $70 a month. Add that to the $50 you’re already saving and you’re suddenly setting aside $120 monthly. In a 4.00% APY account, you’ll have nearly $10,000 in just six years.
6. Find Ways To Earn More
You can start with your current job, but you might need to look beyond that. Consider taking on a side hustle you can do in your spare time. Sell things like lightly used apparel or sporting equipment. Any amount earned is money you can put toward your emergency fund.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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