How to Save Money When Your Emergency Fund is Wiped Out - Real Advice Gal (2024)

FAQs

What are two real life examples of how an emergency fund could help reduce stress in your life? ›

A major home repair, like a leaking roof, is an example of an unplanned expense that needs to be dealt with right away. Losing a job is an example of a financial emergency that can cause a lot of stress if you don't have an emergency fund to dip into to pay for necessities and bills.

Use Low-Risk Accounts: Place your emergency fund in a savings account, or short-term certificate of deposit (CD). These options offer both liquidity and safety. Avoid Risky Investments: Keep your emergency fund away from risky assets like stocks or long-term investments.

Some common examples include car repairs, home repairs, medical bills, or a loss of income. In general, emergency savings can be used for large or small unplanned bills or payments that are not part of your routine monthly expenses and spending.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

Here are some of the top emergencies people face: Job loss. Medical or dental emergency. Unexpected home repairs.

It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.

Certificate of deposit

Competitive one-year CDs, for example, can earn as much as 5.4% APY, which is higher than the average high-yield savings account. While a CD can be a great place to store extra savings, it shouldn't serve as the primary savings option for your emergency fund.

While experts generally recommend building an emergency fund equal to three to six months' worth of expenses, this is only a guideline. Calculating your personal emergency savings goal requires having a clear picture of your financial situation.

DO understand what constitutes an emergency. Job loss or unexpected expenses requiring travel, car repairs, medical or dental procedures. Things like gifts, entertainment, vacations and sporting events don't qualify.

How to build savings backup? ›

Canceling unnecessary subscriptions and automating your savings are a couple of simple ways to save money quickly. Switching banks, opening a short-term CD, and signing up for rewards programs can also help you save money. Making a budget and eliminating a spending habit each day can help lead to long-term savings.

If you have any debt other than a mortgage, then you just need a $1,000 emergency fund—aka a starter emergency fund. We call this Baby Step 1. It's the first piece of your money journey, so don't skip over it. That starter emergency fund sets you up to begin paying off your debt—that's Baby Step 2.

To have a negative savings rate means spending more money than you make and acquiring debt. The key to saving money is to: focus, make saving a habit and a priority, and discipline. Your income is not a key to saving money.

Source: NerdWallet survey conducted online March 30-April 3, 2023, by The Harris Poll among 2,035 U.S. adults. Savers say they typically set aside $985, on average, in a normal month, according to the survey. The median amount reported is $250.

So you dip into savings when an expense would cause your bank account to slip below an acceptable level. Be careful here. It's easy to get used to a certain balance in your checking account and cover up financial damage by topping it up from your savings account.

Benefits of an emergency fund go beyond dollars and cents. Having an adequate emergency fund also provides peace of mind that you are not living on the financial edge.” This reduces stress which is often associated with physical ailments such insomnia and anxiety.

Eat healthy, exercise, get plenty of sleep, and give yourself a break if you feel stressed out.

Whether it's an unexpected illness or a major accident, an emergency fund helps you pay for big medical expenses that could otherwise hurt you financially. Even if you have medical or dental insurance, you could still have to pay for all or part of your care out of pocket.