Rebuilding your emergency fund after you’ve used it

Unexpected events like the pandemic or a natural disaster remind us how quickly life can change. If we’re not prepared financially, we can be left scrambling to figure out what to do. These are the times when many people rely on their emergency funds to stay afloat, but what happens when that money is gone following an event? How do you rebuild this financial safety net? Here are some tips for emergency fund planning for this important financial safety net.

What is an emergency fund?

An emergency fund is a cash reserve that is set aside for financial emergencies or out-of-the-blue expenses, such as house or car repairs, and can help ease the pressure during a stressful time. Your emergency fund should generally be separate from your savings account since a savings account sets aside money for a particular goal, while the purpose of an emergency fund is to help cover, unexpected costs for a short period. How much money to put into an emergency fund depends upon your situation and monthly expenses, but a general rule recommends that a single person should consider having enough money to cover three months of expenses, while a family with dependents should aim for six months.

Building a starter emergency fund

To help you weather a future emergency, you can proactively build a baby emergency fund or starter emergency fund. This fund contains a smaller amount of money than a full emergency fund and should be based on your expenses, not your monthly income. This type of fallback account is meant to generally cover one month’s worth of your essential expenses and can offer a great way to start an emergency fund from scratch or build back up a depleted one. Proper budgeting and reduced spending are ways to getting this fund going and helps start building your balance up.

Making an emergency budget

After spending your emergency fund, you may be in emergency mode, which means your spending reflects your current financial state. You can start by building a whole new budget. Similar to building a regular budget, your emergency budget will be based on your income and expenses, while cutting out any spending categories that aren't necessary. In other words, you can try and create a much stricter budget that keeps your expenses down to essentials.

Cutting non-essential expenses

To help put extra money toward your emergency fund, you could take stock of subscriptions, streaming memberships, and apps that you may not use. You could also cut back on eating out, unnecessary clothes shopping, entertainment, or travel plans for a while.

Pausing non-essential money goals

Before the emergency fund was utilized, you may have been tackling debt by paying off credit cards or school loans. In this situation, you could go back to making the minimum payments on what you owe until you have your starter emergency fund back to a comfortable amount.

Reducing the grocery bill

Your monthly food bill is typically one of the largest household expenses. To help save money while rebuilding an emergency fund, you could consider using coupons, only buying what is needed, planning meals for the week, and making extra portions to provide leftovers for lunch.

Lowering your utility bill

Cutting back on electricity and home heating and cooling bills can make a big impact when trying to save money and rebuild your emergency fund. To help lower your utility bills you could:

• Adjust the thermostat up or down a couple of degrees
• Keep curtains closed during hotter days
• Use less air conditioning
• Turn off the computer when not in use
• Only run the dishwasher with a full load
• Hang dry laundry instead of running the dryer
• Install energy-efficient lightbulbs

Reducing automotive costs

The average person spends thousands of dollars a year on transportation costs. Selling your vehicle may be an option and then using alternate transportation that could help cut your household expenses by removing costs associated with owning a vehicle.

Tracking your spending

One way to help your emergency budget work is to track your income and expenses. This practice can be especially important when you’re in emergency mode. To help keep track of your spending you could:

• Save your receipts and keep a running tally of what you’ve bought.
• When you use a credit card, make sure to check your balance regularly so it doesn’t get too high.
• Download a free finance app to help make tracking all your accounts easier.

Earning extra

If you’d like to rebuild your emergency fund faster, or you simply wish to increase the amount you’re saving each month, there are a variety of ways to help supplement your income. You could take on a part-time job. You could pick up delivery jobs, drive passengers, sell items around the house you no longer need, tutor students, babysit, pet sit, or rent a room if you have the space.

Create a backup plan

The idea of another emergency happening is often scary, so having a dedicated emergency fund can help ease those worries. You could consider creating a backup plan where you devise a short-term strategy that includes where you could find employment, take out a loan, or get help from family or friends if you needed more than your emergency fund could provide. Since life is often very unpredictable, we all may face a difficult time, so being prepared can help add a little peace of mind to the road ahead. Consider taking time to maintain and reassess your budget regularly and prioritize your spending when possible. If you can, you could set aside a certain amount of your paycheck each month to automatically deposit in your emergency fund. By doing so, you can begin to rebuild your emergency reserve if the need arises in the future.

B3-MN-10-22

REV 10/2022