How to Build an Emergency Fund on a Tight Budget

Building an emergency fund isn’t always as simple as cutting out $6 lattes. Especially when you rarely spend carelessly. Or when you’re already working two jobs and don’t have time to start a side hustle.  

With 61% of adults living paycheck to paycheck, it’s safe to say that not everyone is wasting their money on forgotten subscriptions. Couldn’t things like rising inflation and the resumption of student loan payments play a role? 

Sometimes, money is just tight. Here’s how you can build an emergency fund even when every dollar goes toward your basic living expenses. 

Make the most of your taxes 

There are two ways you can make the most of your taxes to begin building an emergency fund.  

First, the average refund in 2023 was $2,812. If you get a refund, consider putting that money into a high-yield savings account.  

The average savings account currently earns 0.47%. To maximize your savings, look for a savings account with an interest rate of 3% or higher.  

Second, if you work a W-2 job and keep getting a refund each year, consider adjusting your withholdings. A refund isn’t free money. It represents taxes you overpaid throughout the year.  

So rather than continuing to overpay, adjust your withholdings to reduce the amount of taxes taken out of your paycheck. Then, use that extra money to build your emergency fund.  

You can ask your human resources department to update your W-4 so you receive a larger take-home pay. Then, set up an automatic transfer to your savings account for that additional amount.  

For example, if you receive an extra $34 biweekly after adjusting your withholdings, that’s $884 toward your emergency fund at the end of the year—not including all the interest you’ll earn from stashing it in a high-yield savings account. 

But be careful not to adjust your W-4 so much that you owe taxes next year.   

Negotiate your current bills 

Do an audit of your current spending when it comes to your cell phone plan, insurance, internet, or cable provider. Then, compare them with two to three companies that offer the same or a similar plan.  

You may find that you’re able to get the same plan for a much cheaper price. Or, you may be able to use the incentives offered by others’ plans to get your bill at your current provider reduced. Most organizations are willing to negotiate with you to keep you as a customer.  

💡Tip: When creating a budget, set up an automatic transfer that covers the difference between your old bill payments and your new bill payments, so the extra funds go straight into an emergency fund account.  

Take part in paid surveys or studies  

Your time and cash flow may already be tight. But if you have a few minutes to spare, consider participating in paid surveys or studies. These paid opportunities usually require little to no physical or mental exertion—making them easier than a side hustle.  

For instance, Swagbucks says many of its users make $1 to $5 per day. That’s an extra $365 to $1,825 per year! This isn’t something you have to do forever, but it could be a good way to build an emergency fund on a tight budget. 

Use a round-up savings program  

Most transactions likely end in an uneven dollar amount. A round-up savings program would take all the extra change from your expenses if you round them up to the nearest dollar and deposit them into a savings account. 

While every dollar of your paycheck is likely accounted for, 20 cents here and there may be easier to part with. Financial institutions like Ally Bank, Chime, and Bank of America have round-up programs that sweep your spare change into savings each time you use your debit card.  

Although building your emergency fund this way is slow, it is still a great place to start. If your bank doesn’t offer a round-up program, you can use a third-party savings app like Qapital to manage your extra change and put it in your savings account for you. 

Make the most of three-payday months 

For anyone on a bi-weekly pay schedule, twice a year you’ll have a month with three paydays rather than two. Make the most of this third paycheck by depositing it into an emergency fund account.  

Take note of which months with a third payment ahead of time so you aren’t tempted to spend the money elsewhere.  

Participate in bank bonuses 

Banks will encourage new customers to open accounts by offering cash sign-up bonuses. This often comes with some red tape, like having to wait a certain amount of time before receiving the payout or forcing you to have a certain amount of money in your account.  

Consider using a banking bonus to start or add to your emergency fund after double-checking the requirements. Payouts range from $50 to $600+ depending on the bank and special promotions.  

Check if you’re eligible for the Earned Income Tax Credit 

Individuals who are considered low or moderate income could qualify for an Earned Income Tax Credit. This credit spans $1,000 to $2,000+ to your tax return. You can find more details in IRS Publication 596. Work with a local Taxpayer Assistance Center if you need additional support applying for this credit.  

You can start an emergency fund today 

Saving up an emergency fund is a great way to take care of your future self. By putting a little aside here and there, you’ll be prepared when disaster strikes. While it may feel like you’re scraping together nickels and dimes to build your savings account, don’t be discouraged.  

Consistency is more important than the amount you’re saving when it comes to getting your emergency fund started. If all you can save is $5 a month, saving something is better than nothing.  

Frequently asked questions about building an emergency fund

What is an emergency fund? 

An emergency fund is a savings account dedicated to unexpected expenses. For example, if your car breaks down and it will cost $750 to fix it, you could use your emergency fund to cover the cost instead of having to add it to a credit card.   

Buying your kids’ back-to-school supplies, on the other hand, is an expense you can expect, so you may not want to use an emergency fund to cover the cost.  

How much should I have in an emergency fund? 

How much you should have in an emergency fund is a widely debated number. $1,000 is a good starting goal. $1,000 can cover quite a few things when unexpected expenses pop up.  

From there, figure out what three months’ worth of your expenses look like and save that amount. Once you hit that, set a goal for saving six months, then a year. It’s okay if it takes a couple of years to reach a year’s worth of savings. A consistent savings plan can help you get there. 

Don’t forget to adjust your goal for any lifestyle changes, like a mortgage payment or a new lease on a car.  

How do you build an emergency fund when money is tight? 

It can be hard to build an emergency fund when money is tight, but it is possible. Here are some ways you can build an emergency fund: 

  • Leverage your taxes 
  • Negotiate your current bills 
  • Participate in paid studies 
  • Utilize a round-up savings program 
  • Make the most of three payday months 
  • Leverage bank bonuses 
  • Check if you’re eligible for income tax credit 
  • Explore other government programs 
  • Open a dedicated savings account or emergency fund 
  • Track your spending 
  • Allocate a fixed percentage of your income to savings monthly  
  • Budget wisely 
  • Cut unnecessary subscriptions 
  • Deposit any extra income directly into savings  
  • Reduce utility bills 
  • Coupon clip for groceries 
  • Limit dining out 
  • Avoid money mistakes 
  • Make your meals in bulk 
  • Start a side hustle 
  • Sell unused items 
  • Use cashback apps and credit card points 
  • Buy second-hand or refurbished items 
  • Pay off high-interest debts first to reduce overall expenses 
  • DIY when possible 

How much money do you need to start an emergency fund? 

The amount of money you need to start an emergency fund is likely much less than you expect. Any amount is a good amount. From the extra change in your pocket to $100—no number’s too small to start saving for your future financial stability. What’s important is that you get started as soon as possible.  

How do I build an emergency fund with low income? 

If you want to build an emergency fund with a low income, set small, realistic goals for yourself. Then, devise a plan to meet those goals, such as using government resources, opening a high-yield savings account, or making the most of your three payday months. 

Small goals and specific plans will help you build momentum. You don’t have to have three month’s worth of savings all at once. It’s fine if you’re setting a savings goal at $500, or even $200.  

What can you spend an emergency fund on?  

How you can use your emergency fund is mostly up to you, but this isn’t money you should be spending on “wants” or to cover months you’re short on cash. Consider making a list ahead of time of all the situations in which you can use your emergency fund, and then stick to it.  

Some common examples of when you can use an emergency fund are to fix your car, repair your home, or cover unexpected medical bills. If it doesn’t make your list or isn’t truly an emergency, don’t use your emergency fund for it! 

Written by Cassidy Horton | Edited by Rose Wheeler

Cassidy Horton is a finance writer who’s passionate about helping people find financial freedom. With an MBA and a bachelor’s in public relations, her work has been published over a thousand times online by finance brands like Forbes Advisor, The Balance, PayPal, and more. Cassidy is also the founder of Money Hungry Freelancers, a platform that helps freelancers ditch their financial stress.

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