Too Broke for an Emergency Fund? Here's How to Build One Anyway

Search online or scroll FinTok for #emergencysavings tips, and odds are you'll click on the same advice that financial experts have doled out for years: To protect yourself from catastrophe, save at least three to six months' worth of expenses (or more if you can afford it).

But if you're already struggling to come up with rent money each month or pay for food without searching your pockets for leftover dollars, such well-intentioned advice can sound painfully unrealistic.

Luckily, you don't necessarily need several paychecks' worth of savings set aside for an emergency fund to be protective. Even a small rainy day fund can help shield you from bad luck.

Struggling to Save for Emergencies? You Aren't Alone

For most people, setting aside three to six months' worth of expenses isn't just hard—it's all but impossible.

For example:

• • The Consumer Financial Protection Bureau (CFPB) recently examined how much money Americans had saved specifically for emergencies, and found that most Americans (63%) don't even have a month's worth of income set aside. Younger Americans are even less likely to have saved much.¹

• • According to a recent survey by Bankrate, most people younger than 43 (79% of millennials and 85% of Gen Zers) worry that they would run out of money within a month if their primary source of income disappeared.²
• • A separate survey by Deloitte found that 47% of millennials and 46% of Gen Zers live paycheck to paycheck and feel insecure about their ability to pay bills.³

Considering how much money the average person needs to save to follow conventional advice, it's no wonder so many people struggle. For example:

• • If you earn $40,000 a year, take home roughly $2,400 a month after taxes and mostly live paycheck to paycheck, you may only have a tiny chunk left over to set aside for savings. But you'll need access to much more if your income dries up.
• • Let's say your basic expenses (e.g., rent, utilities, student loan payments, healthcare, food and transportation expenses) typically add up to $2,000 each month. You'll need to save at least $6,000 to cover just three months' worth of living expenses. To cover six months, you'll need $12,000.
• • Even if you cut your expenses by a third, you'd still need to save at least $4,000 to $8,000 to cover your spending for up to six months.

But that doesn't mean you should give up on building a robust emergency fund. You can still build a decent buffer over time, even with a tight income. For example:

• • If you can pull together $200 a month, you can save at least $2,400 within a year.
• • Saving $500 a month would leave you with $6,000 in a year.
• • Even if you can only save $50 to $100 a month, you'll still have enough money set aside by year-end to pay for a $600 to $1,200 emergency.

How Much Do You Need in an Emergency Fund?

In an ideal world, your emergency fund would easily cover your expenses for several months in the event that you lost your job or your hours were cut so much you couldn't pay your bills. In fact, some people recommend you save as much as 10 months' worth of living expenses in case it takes longer than you expect to find a new job.

In the real world, however, the goalposts aren't nearly as ambitious. These days, the cost of living has grown so much that snagging frozen pizza at half price can feel like a savings win. So don't beat yourself up if your emergency fund looks as anemic as your income feels.

If you can manage at least $1,000 to $2,000 in a savings account, count that as an early win—especially if the extra cash helps keep you out of debt. Research by the CFPB found that sudden, unexpected expenses are among the most common reasons people struggle to pay bills.⁴ And if your income is on the low end, even sudden expenses in the $100 to $1,000 range can be financially disruptive.

But your savings won't stay small forever. Just as your income is likely to grow as you gain more work experience over time, so too will your emergency savings—especially if you're strategic with the type of savings account you choose. For example, if you open an account with a competitive annual percentage yield (like a high yield savings account) for your any-sized rainy day fund and contribute to it regularly, you'll see your funds grow faster than if you'd left it in a basic savings account. (Of course, your expenses will probably grow with you, too, but that's a worry for another day.)

How Much Do You Really Need in Your Emergency Fund?

For now, it's worth focusing on what's attainable with your current income and expenses, rather than on what you wish you had available. You may be surprised by how little you actually need to avoid a financial catastrophe; even a small emergency fund can help save you from financial disaster. For example:

• • The CFPB recently looked at the financial outcomes of Americans who either had no emergency savings at all, less than a month's worth of income saved or more than a month of income tucked away. As expected, those who saved a month or more of income for emergencies fared the best financially. But even those who saved less came out well ahead of those who didn't save at all.¹
• • People who set aside at least some money for emergencies tend to have higher credit scores and are less likely to fall behind on payments or turn to high-interest credit options, such as payday or auto title loans, the CFPB found.¹
• • Similarly, a frequently cited paper by researchers at the University of Colorado at Boulder and Universidad Diego Portales identified $2,467 as a more realistic minimum savings goal for low-income savers than the three-to-six-months rule.⁵
• • Another study produced by the Financial Health Network suggests that even just starting a savings habit can be protective: People were significantly less likely to experience financial hardship if they started saving within the past 12 months.⁶

How to Calculate Your Emergency Fund Balance

The key to building an any-sized emergency fund that works for you is to consider your personal needs and resources, and prioritize your needs over generic savings rules.

Here's how to calculate your emergency fund needs in four steps:

1. Evaluate your transactions

Highlight fixed expenses that are the same each month, such as monthly rent or loan payments. Add those together and write down the sum on a sheet of paper, or plug it into a spreadsheet.

2. Add up your spending on basic fixed costs

Next, focus on recurring expenses that are needs, not wants, but that can potentially be pared down. For example, if you typically shop name-brand products, rarely clip coupons or spend a lot of money each month dining out or shopping at specialty grocers, your minimum food budget is almost certainly smaller than your current one. Once you've identified the minimum you need to spend on variable expenses like food and transportation, add those costs together and record the sum underneath your fixed expenses.

3. Add up your minimum variable spending

Now, consider how much money you'd need to spend each month to keep your spirits up while you job hunt. Don't overdo it, but don't skimp either. Tending to your personal and mental health is critical when you're going through a down period, and occasionally treating yourself can go a long way toward boosting your morale. Once you've determined how much you can reasonably spend on just-for-fun, write this figure underneath your fixed and variable expenses.

 4. Add it all together

Finally, add up all three categories: fixed monthly expenses, minimum variable expenses and just-for-fun expenses, and circle the sum. This is a good starting point for determining a realistic savings goal.

If this amount still seems out of reach, don't panic. You have options; you may just need to get creative or do more brainstorming. For example, reevaluate your available resources and what else you could do in an emergency to pare down expenses. Do you have family you could stay with if you lost your job? Could you work from home or tap other emergency resources? The bigger your safety net, the less you may need in a pinch.

Once you've determined an initial savings goal, make a plan for following through. And don't stop there—park your funds in a dedicated savings account that's earmarked just for emergencies, and tend to it regularly.

Start an Emergency Fund With Synchrony Bank

Your emergency fund doesn't need to be enormous, but it should provide enough of a cushion to help you get by in rough times. Establishing a savings habit now will not only strengthen your finances, but it can also boost your confidence and reduce financial stress.

 

Kelly Dilworth is a business and personal finance reporter, specializing in the intersection between money and life. She has covered consumer banking and lending for more than a decade and particularly enjoys writing about consumer behavior and psychology, new consumer research and how everyday banking products impact people's lives.

READ MORE: Why You Should Save Money at Any Age

 

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