5 Tips for Rebuilding Your Emergency Savings After a Financial Setback
Editor’s Note: This post was originally published in August 2020.
Key Takeaways
- Rebuilding your emergency savings starts with updating your budget and savings goals.
- You may need to temporarily cut expenses and press pause on other financial goals.
- For many people, boosting your income is the fastest way to replenish your savings.
After a financial emergency, it can feel impossible to rebuild everything that you lost. Perhaps you had to use up all of your emergency savings to pay for car repairs, medical bills or other unexpected expenses.
As frustrating as it is to see your emergency savings evaporate, that’s what the money was there for. After all, that cash wasn’t meant to sit in a bank account forever. You needed it, and you used it.
Now that your emergency is over with, what happens next? Well, it’s time to start rebuilding your emergency fund, so it’s there to catch you next time you have a financial stumble. Of course, you don’t have to put together a fully-funded emergency savings account overnight, but here’s what you can do to get things moving in the right direction.
1. Update your budget
After an emergency, there’s a good chance your income or expenses have shifted. That means an updated monthly budget is in order.
Whether you lost one job and found another, or dealt with a large one-time expense that took a chunk out of your savings, rebuilding means having new financial parameters. If your emergency fund is drained, then you also have new savings goals and may need to make some spending cuts as a result.
To refresh your budget, you’ll need to make a list of all your current income sources and all of your monthly expenses. For those that vary, try to pinpoint the average monthly amount. For example, if you spend about $1,200 on travel every year, add $100 to the “travel” line item in your monthly budget so you can set aside money for that future expense.
2. Find ways to boost your income
If your income isn’t what it used to be, finding a new job or picking up another stream of income might be in order.
Finding the right side hustle can be a quick way to grow your savings, and it can give you a little extra pocket change once you reach your goals. You might come up with the money you need by taking on a babysitting gig, or offering dog-walking services in your free time. It can be permanent or temporary, as long as it helps you progress toward your financial goals.
But it’s also a good idea to search the market for higher-paying jobs. Alternatively, you might talk to your manager and find out how you can position yourself for a promotion or pay raise.
3. Cut nonessential expenses (for now)
Giving up a weekly meal out or an entertainment subscription for a while might make you a little sad, but doing this temporarily can help you rebuild your savings faster.
The goal isn’t to deprive yourself of all fun and enjoyment. In fact, cutting expenses too aggressively can actually backfire and lead to impulsive financial decisions. However, you can review all of your spending and decide which items are low-priority for now.
Depending on your circumstances, you may want to eliminate one or more of these expenses while you work on saving money:
- Dining out and food delivery
- Travel
- Rideshares
- Clothing
- Recreation
- Beauty and personal care
- Gifts
- Streaming services
4. Put bigger financial goals on pause
It can be tough to hold off on goals like buying a home or paying off your student loans early. Yes, those are important goals, and reaching them can feel like the best thing to focus on. However, your safety net needs to come first. You’ve already proven that you need an emergency fund, so you know its value.
That doesn’t mean your big goals won’t ever happen. You just need to be patient and put first things first. Once you rebuild your emergency fund, you can refocus your efforts on other long-term goals.
5. Review your progress monthly
Even when you’re not in financial recovery mode, it’s important to regularly review your budget and spending. If you take a look at the numbers at the end of each month, you can see what needs to be adjusted before your finances veer off course.
Depending on what you find, you may realize you can reach your goal faster than expected. At worst, you can head off bad habits before they undo all of your progress.
Rebuild your emergency fund for peace of mind
Everyone’s budget is different, but one thing’s for sure: Your emergency savings fund is not the place to skimp. When you have that money in place, it’s like having a safety net that will catch you and help you bounce back next time you’re facing a financial crisis or hurdle.
If you need help updating your budget and reaching your financial goals, you don’t have to figure it out on your own! If you set up an appointment with an NFCC-certified credit counselor, your counselor can help with budgeting support, personalized advice and more.
