Money milestones: How to rebuild a depleted emergency savings fund

Brian Acton


Brian Acton

Brian Acton

Contributing Reporter

Brian Acton is a contributing reporter at Policygenius, where he covers personal finance and insurance news. His work has also appeared in The Wall Street Journal, TIME, USA Today, MarketWatch, Inc. Magazine, and HuffPost. 

Published|6 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our editorial standards and how we make money.

Financial emergencies range from life altering, like a house fire, to mundane, like a broken appliance. Recently, the coronavirus crisis is hitting the economy hard, impacting people across the country — from workers losing their jobs to families confronted with medical debt.

To prepare for these unplanned expenses, everyone should have an emergency savings fund that acts as a financial safety net.

“When a real emergency does come along that requires cash to take care of immediately, the true value of an emergency fund becomes apparent,” said Drew Feutz, certified financial planner at Market Street Wealth Management Advisors. “Without an emergency fund in place you’d likely end up continuing to increase your credit card debt and compounding the problem.”

But what can you do when you’ve saved up a sizable emergency fund, only to use it all for an actual emergency? While it’s good that the system worked as intended, you’ve now got to build your fund back up.

If you’ve recently tapped your emergency fund, here’s how to build it back up.

1. Set a goal

To start, set a goal for how much you need in your emergency savings fund. Your goal could be replacing the funds you just used or saving more than what you initially set aside.

One common recommendation is saving three to six months’ worth of expenses. To calculate, tally up all essential expenses — think food, rent, bills, transportation and other necessities — and multiply by the number of months you want to save. Keep in mind that number is flexible and based on your financial needs.

The key is to strive for enough to cover unexpected emergencies, but not to neglect other priorities. Once you have enough cash in your emergency fund, pivot to other financial goals like paying off debt, saving for retirement or buying a home.

2. Recover any lost costs

After suffering financial blow, the first priority should be recouping funds, if possible. Not all unexpected expenses can be recovered. For example, if your house needs a new roof after ten years or you need to put new tires on your car, you probably have to make those purchases out of pocket. But for some unexpected expenses, it’s worth trying to recover any costs.

Medical bills should be carefully reviewed and submitted to your insurance provider. If you have a flexible spending account for medical expenses, make sure to submit eligible costs directly to your plan administrator for tax-free reimbursements. Damage to your home or property may be covered by your homeowners insurance. Even broken appliances or vehicle breakdowns could be covered by manufacturer warranties.

“You can submit for reimbursement and take that money and park it in your emergency fund,” said Feutz.

If you’re really in dire financial straits, you may want to look at assistance programs such as unemployment benefits, financial assistance for medical bills and other resources.

Check out our unemployment resources guide to learn more.

3. Adjust your budget

Take a look at your current spending habits and budget allocations, and do some retooling to focus on savings. Reduce some of your other expenses to make some wiggle room. Whether it takes a few months, a year or more depends on your overall goal and how much room you can find in your budget.

Review your existing income and expenses and look for areas to divert to savings. You may want to reduce or eliminate unnecessary expenses like dining out, going to the movies and subscription services.

“You should check and see what the big ticket discretionary expenses are in your spending habits that you can cut back on over the next six to 12 months to redirect that cash to your emergency fund,” said Feutz.

If you can avoid it, don’t eliminate allocations toward other important financial goals such as paying down debt or saving for retirement. You don’t want to establish a strong emergency fund at the expense of your retirement security or responsible debt payments.

“If you’re making extra payments towards student loans or your mortgage, then you could temporarily scale back and redirect those extra payments towards your emergency fund,” said Feutz.

Don’t have an established budget? Get started using our monthly budgeting spreadsheet.

4. Start saving

Now that you’ve established how much you wish to save on a monthly basis, it’s time to start saving. Figure out what saving schedule works for you — whether you contribute to your savings fund monthly, weekly or every payday depends on your cash flow needs. Then commit to contributing the funds you’ve set aside in your budget for emergency savings until you reach your goal.

To make things easier, set up automatic transfers with your bank to direct funds into your savings account. You can designate a certain amount of your paycheck to go into savings, taking the guesswork and scheduling out of the equation.

5. Put unexpected windfalls in savings

Whenever you receive income beyond your usual paycheck — including tax refunds, birthday money or an inheritance — you can use some (or all) of it to beef up your emergency savings fund and get closer to your goal. Instead of splurging, put your windfall to good use.

Here’s how to manage your wealth after receiving an unexpected windfall

6. Earn extra income through a side hustle

A side hustle can help you bring in extra cash to add to your emergency savings. You could start by writing for an online blog, delivering groceries, dog walking and more. It will be easier to contribute to your emergency savings fund when you have extra cash on hand.

Here are some side gigs that cost absolutely nothing to start.

7. Open a high yield savings account

Traditional savings accounts can actually lose value over time because their low interest yields don’t keep up with inflation. High yield savings accounts, which are typically offered by online banks, tend to earn much higher interest. For this reason, it’s a better long term strategy to park your cash in a high yield savings account, which can typically be created online in minutes.

The one downside is that most online banks won’t have the same level of service as a traditional bank. You won’t be able to simply walk into a branch and make a withdrawal. It may even take a little bit longer to access your funds — as much as a few days. So it’s a good idea to keep a comfortable cushion in a traditional savings account for easy access, and put the rest in a high yield account.

8. Seek financial assistance

Much of the advice here assumes you have already emerged from your financial emergency and you’re ready to start saving. Maybe you’ve already replaced your vehicle or found a new job.

But if you’re still experiencing financial difficulties, saving up an emergency fund is going to be more challenging. If you experienced a job loss, seek unemployment benefits and job search assistance. If you’re having difficulty affording your medical bills, you may be able to negotiate a lower bill with the medical provider based on your need.

In short, saving for an emergency fund can be next to impossible when you’re still in the middle of an emergency. Work on digging yourself out first, then focus on emergency savings.

Recommended reading

Image: Nastia Kobzarenko

Ready to shop for life insurance?

Start calculator