How To Build $1,000 Emergency Fund

edited by: Eve Fish

Isn’t this how it always happens? You’re moving through life, working hard, paying your bills, and taking care of your household when suddenly your car breaks down and you need $900 to pay the repairs. Or maybe your refrigerator breaks and you need to buy a new one. These sudden, expected costs can really detail your life. You suddenly go from everything being balanced and everything working out to struggling to make ends meet. It’s an unfortunate reality for so many people. 

The reason why? Most people don’t have an adequate emergency fund.  

In fact, 1 in 3 Americans have no emergency savings, while the median amount of emergency savings in the United States is $600, which is less than most people need. Today, about 47% of Americans say they have enough saved to cover a $1000 emergency expense. Of course, that means 53% of Americans do not. That means nearly any sudden expense can cause you to go into debt or cut into other spending, which can lead to financial difficulties in the future, not to mention stress and anxiety. 

It’s generally recommended to have at least three months of essential expenses in your emergency fundiv. This means if it costs you $2000 each month to pay your necessary expenses (rent or mortgage, food costs, etc.), they you should have at least $6000 saved for emergencies. 

Of course, for someone starting off at zero, saving $6000 sounds nearly impossible. That’s why you shouldn’t focus on suddenly saving that much. Going from no emergency fund (or a very small one) to having enough to cover months of expenses isn’t realistic. Worse than that, it’s demoralizing. It’s easy to look at those numbers and thing that you’ll never reach where you should be, and that thinking causes people to not even try to save. 

The reality is that even a small emergency fund matters. Having $1000 saved can be the difference between being able to fix your car or replacing your fridge and ending up in debt. Despite how it might seem right now, especially if you’re starting at zero, building a $1000 emergency fund is possible. Here’s how you do it. 

The Steps to Build a $1000 Emergency Fund 

While it might seem overwhelming at first, building an emergency fund becomes a lot more feasible when you follow the right steps. Here’s exactly what you need to do.  

Open a Separate Account 

Most financial institutions make it easy to set up a separate account. It’s a good idea to keep your emergency fund in a savings account where you can get quick access to the money, but not in your regular checking account. Having this barrier means you’ll be less likely to dip into it for non-emergency purchases. Plus, it will be easier to track how much you have saved.  

Ideally, you’ll want an account that has no or low fees and lets you withdraw money without any costs or penalties. It’s good if the account generates interest, but you don’t want your money to be exposed to market fluctuations since you want to be able to take it out whenever you need it.  

Look at Your Expenses 

Now it’s time to determine exactly how much you can save each month. 

If you can, cut from your discretionary expenses at least temporarily so you can increase your savings. This means spending on things that are optional and non-essential. Look at everything you spend money on each month that you don’t technically have to spend. For instance, your rent or mortgage payment can’t really be changed, nor can your utilities or your debt repayment. However, you probably could reduce spending in other areas like entertainment or eating out.  

If it’s hard for you to picture saving a certain amount each month, break it down into says instead. $200 per month works out to just under $7 per day. When you look at it this way, there are probably a lot of things you can do to save $7 each day, such as walking instead of taking transit or bringing your lunch instead of buying it. Small savings add up. 

Then you’ll want to look for ways to adjust things to save even more. For instance, can you renegotiate some of your bills or change to a different plan? Sometimes calling your phone, internet, or cable company (for example) and asking for a cheaper plan can really pay off. 

There are also a lot of ways to make some extra money, including selling items you have but no longer need, doing some freelance work, or finding an extra job (if time permits).  About 36% of U.S. adults have a side hustle and they’re bringing in an average of $891 per month. 

Make Goals 

Once you know how much you can save each month, make a goal. For instance, if you calculate that you can save $200 each month, you should be able to reach your $1000 emergency fund goal in five months. 

Making specific goals is significantly more effective than vague onesvi. For instance, setting a goal of saving $1000 over the next few months will be much more successful than saying “I’m going to build my emergency fund,” since the numbers are specific. 

Automate It 

Once you know how much you’re going to save each month, see if you can automate the process. Many banks make it easy to automatically move money from one account to another. When you “set it and forget it,” the savings add up on their own over time, and you don’t need to do anything. 

Track the Process 

Keep track of how you’re doing and adjust your plan over time. For instance, if you’re easily able to put aside $100 each month, consider adjusting your savings goal so it’s a bit higher. On the other hand, if you’re having trouble every month, you’ll want to review your budget, adjust your spending, and possibly revise your goal to something more manageable.  

Reward Yourself 

Saving money is a big deal, and it is especially tough today with the rising cost of living. If you can manage to hit your goals (or even exceed them), you deserve a reward! Of course, you don’t want your reward to cut into your actual savings goals. A good plan is to budget in the reward so that you can treat yourself guilt-free. For instance, if your savings goal is $1000, once you hit $1050, go out and spend that $50 on something you’ll enjoy. This will motivate you to keep going and continue to build your fund over time. 

Keep Going 

One thousand dollars in savings is great. However, as mentioned, most people should have about three to six months of expenses saved in their emergency fundvii. This allows you to not just cover sudden expenses, but you’ll also be able to handle things like long-term illnesses or job losses that could leave you without income for a while. 

When you have your fund started and $1000 built up, the next step is to plan for how you’ll continue to make it grow. The good news is the steps are generally the same as the first $1000.  

Quick Checklist 

Looking to build a $1000 emergency fund? Here’s a quick checklist that anyone can follow: 

• Make an account for your savings 
• Figure out how much you can save each month 
• Adjust your budget to increase your savings 
• Earn more if you can 
• Create savings goals 
• Automate the process 
• Track your progress 
• Reward yourself 

By following this plan, you’ll be better insulated from unexpected expenses and be well along the path to projecting your budget from emergencies.  

(Disclaimer: This article and apps mentioned are for informational and educational purposes only. The advice given isn’t a guarantee for specific money earnings or savings. You are responsible for your own actions.)