This step-by-step guide walks you through exactly how to build a $1,000 emergency fund in 90 days or less. (And you don’t have to be rich to make it happen.)
So if you wish you had emergency savings to fall back on, this article is for you.
But first, a quick story:
“Your house needs a new air conditioner,” they said. I couldn’t believe it, or afford it if that were true. So I roasted in the 105+ degree Phoenix heat while I saved up $35 for a second opinion. (Yeah, I was pretty broke, and determined not to borrow.)
If only I’d known then what I know now about saving up money fast. I’d have had at least a $1000 emergency fund to draw from like I do now.
If you’d like to learn how to build a $1000 emergency fund in 90 days or less, read on!
Step 1: Let go of any limiting beliefs.
If you already believe it’s possible to save up $1000 in 90 days or less, you’re starting off from a great place and can skip to step 2. But if you have any doubts or find yourself thinking “oh but I can’t do that because ______”, this part is for you.
Trust me, I know what it’s like to be struggling to make ends meet. I tried and failed to save a single dollar for the longest time, feeling like a loser when I’d withdraw it. But it is possible for things to change, and get better so that you can save. Believing that and getting rid of the “can’ts” is the first step.
If you catch yourself thinking or saying “I can’t because….”, tell yourself “stop!” instead. (Out loud even!) Then reframe it to something you can believe. That might be, “I may not see how I can save up just yet, but I’m getting closer to making it happen every day.” Or “I’m not going to dwell on that. Right now I’m going to focus on finding ways to do it anyway.” (Then mentally change the subject.) Work on that while you go on to step 2.
Step 2: Pick a place to park your $1000 emergency fund.
If you already have an account open for your emergency fund, you can skip to step 4. But if you’re not sure where to put your emergency fund, read on…
People sometimes spend way too much time agonizing over where to put their emergency fund. The thing is, it truly doesn’t matter all that much so long as you pick somewhere that’s safe and without fees.
If you’re starting from zero like I did, even a piggy bank, old purse, or jar that you hide away in the house will work until you can get an account set up somewhere.
Don’t worry about interest rates, earning money with it, and or investing it. (Definitely don’t invest it.) The goal isn’t to make money with an emergency fund; it’s to prevent debt and provide safety. Think of it as an investment in your peace of mind instead.
How do you know if someplace is safe to put your emergency fund?
If you’re in the US, look for a bank or credit union that’s insured by the FDIC or NCUA. Most of them are, and they’ll have a sign on their door and a notice on their website saying so. If they don’t charge you a fee to have a savings account with them, open one up and be done with it. It’s also good to make sure you’re able to easily add money to your account.
Stop right now and open a savings account for your soon-to-be $1000 emergency fund. Here are the ones I use:
I have my emergency fund at Capital One 360 because they let you easily create multiple, individually named accounts. So I have one named (appropriately enough) Jackie’s Emergency Fund. To open an account with them, just click this referral link (you’ll get a bonus if you meet their opening deposit amount, and I will too), choose Apply Now under the 360 Savings Account section, and follow the directions.
If you want a super easy way to both open a savings account and to start automatically saving, I use and recommend Digit. (Digit is totally my favorite way to automatically build savings.) To use Digit, you’ll need a checking account and a phone you can text with. Read my Digit review for more details on how it works. (It does have a fee though after the first month.)
If you absolutely don’t want to open your emergency fund savings account right this very moment, at the very least add it to your calendar now and commit to doing so within the next 7 days. It won’t take long and is very important. No matter what, pick a safe place to park your emergency fund.
Step 3: Start the savings process.
If you opened an account with Digit, it will start saving for you automatically within the next few days once it’s had time to analyze your typical spending, so you won’t have to do anything to start the process there. (But you may need to speed it up to meet your 90 day goal if it’s not saving as much as you’d like. Don’t worry, you can easily transfer money there yourself too with just a text.)
If you chose another place to save, you’ll need to start the process by manually sending money to it. Send at least $1 so you’ve got it started. Capital One 360 lets you set up automatic savings transfers to it, so if you’re using that go ahead and set that up too.
Step 4: Customize the plan to fill your $1000 baby emergency fund.
Let’s think about this a minute. $1000 within 90 days breaks down to just over $11.11 per day. That’s the amount you need to set aside to reach your $1000 baby emergency fund goal.
If that amount sounds completely doable to you right now…
Mark your calendar to do a transfer to your emergency fund every day for the next 90 days. (Of course, you can do it in bigger chunks & fewer transfers instead if that’s easier, but it can be motivating to watch your fund grow on a daily basis too.)
If you’re not sure where to get the money yet…
There are two ways to go about it, and you can do a combination of both to get to that $11.11 a day. You can: spend less and/or earn more.
Let’s talk about spending less first.
Start by considering your current situation. How much do you typically spend in a day right now, and what are you spending it on? If aren’t sure (most people aren’t!) track your spending for a day or two — starting now — to get an idea.
Tracking your spending is not complicated. All you need is a piece of paper or a note app on your phone. When you buy something, write down what it was and how much it cost. Ask yourself if you’d rather have that, or more money in your emergency fund. Remember, this is only for a short time! You’re not giving up whatever it is forever, and whether or not you even give a particular thing up temporarily is completely up to you.
While you’re at it, look at big monthly budget items too. What are your typical bills like each month? Maybe there’s one or two you could cut back on, get better deals on, or put on vacation hold temporarily.
You’re aiming for a total of $333.30 a month that you can send to savings instead of bills, which can sound like a big chunk. But it could just require making a few adjustments, depending on where you’re starting out from. If $333.30 sounded huge to you, and you just don’t have anywhere to cut back (or even if you’d just like ways to get your $11.11 a day faster) it’s time to talk about the flip side of things: making more money.
Making more money is a great way to reach all of your financial goals faster.
Making more money is a great way to reach all of your financial goals faster, including this critically important one of getting a starter emergency fund in place.
I know, you’re probably busy and maybe even exhausted. The good news is…you can still make some extra money. Especially since your immediate aim is to make as little as $11.11 a day, for a total of $1000. The basic ways of making more money are:
- Getting a raise or a better job (ideal for the long term!)
- Getting paid overtime at your current job
- Taking on a part-time or temporary job
- Doing extra work on the side (side gigs like dog walking, baby sitting, etc.)
- Selling things you already own
Remember, you’re not looking for the ideal situation. You’re looking for something — or a combination of somethings — that will get you to your goal of $1000 within 90 days. Do not spend money to make this happen.
If you’ve got a neighborhood group on Facebook or are on Nextdoor, let folks know you’re looking for odd jobs and tell them the skills you have or things you could help with. Knock on doors if you have to. People need help with things like pulling weeds, cleaning baseboards, putting up decorations, changing lightbulbs, you name it.
Get creative and remember that every dollar gets you that much closer to your goal. (When you’re tired, remember that this is a sprint and that it’s not forever.)
Keep this in mind as your emergency fund grows.
As you begin making progress and transferring money to your emergency fund, it’s important to keep this in mind: emergency funds are for emergencies — and you get to decide what an emergency is. In fact, the time to do exactly that is now. Before there’s an emergency.
Take a few minutes (with your spouse or significant other if you share finances) and make a written list of the things you plan to consider an emergency. Put it in writing, and keep it somewhere you can refer to it easily. This will keep your emergency fund available for the things you’ve decided are true emergencies vs. being tempted to spend out of frustration, excitement at having a good amount available, or out of boredom on things like pizza. You’ll have worked hard to get it funded, so you’ll want to keep it that way.
As a bonus, creating this list will help you to identify things you that might feel like emergencies right now (because you don’t have the money handy) but are actually more like eventualities that you can start building into your budget over time. (Such as planning for car repairs and maintenance if you own a car.) Once that happens, you can take them off your “emergency” list because they’ll be in your budget instead.
Step 5: Reach at least $1000 in your emergency fund.
By believing you can do it, picking a place to park your emergency fund, opening that savings account, and then funding it by cutting back and/or making more, you’ll be on your way.
Once you hit that $1000 emergency fund goal, celebrate! Dance around the room, make something you like to eat for dinner, or just plain tell yourself good job. It may sound dorky but it’s important to give yourself credit for taking charge of your financial future like this.
If it takes you longer than 90 days or you have setbacks along the way, remember that you are STILL ahead of where you were when you started. Any progress is a good thing!
And once you’re done? Don’t be upset if you do have to use your emergency fund. That’s what it’s for! Congratulate yourself on having the foresight to build one in the first place instead. Then use the same steps you used to create it in the first place to rebuild it again.
The idea behind the $1000 emergency fund goal
Followers of Dave Ramsey will already be familiar with the idea of a $1,000 emergency fund. (He calls that baby step one.)
Building up a small emergency fund is what I recommend as well, but I think ANY amount you can save up to start with is a good idea. The idea is to have money on hand to help you stop borrowing money for small emergencies.
That’s because emergencies happen to all of us. It’s a matter of when, not if.
Having actual money on hand to pay for those is the first line of defense against borrowing. In other words, an emergency fund helps you end the cycle of debt.
That $1000 is not meant to be your entire emergency fund forever; instead it’s part of the process of getting out of debt. (With the idea that a full emergency fund will be built later on.)
$1000 is the beginning
I remember the first time I heard about having a $1000 dollar emergency fund. My first reaction was “That’s it!? A thousand dollars?”
But then about 5 seconds later I remembered struggling to save up even $1, and thought, “On the other hand, a thousand dollars is a LOT!”
So how can it be both a lot and not nearly enough? It’s a matter of perspective.
When you’re in debt, or even just living paycheck to paycheck, even a hundred bucks can seem like a small fortune — let alone a thousand.
But once you’ve gotten a handle on your money and experienced a large emergency (like being out of work for months with no job prospects in sight), you realize just how little $1,000 might cover.
That’s the paradox.
So why aim for a $1000 emergency fund when digging out of debt?
My point of view is that $1,000 is doable for many people, although it may seem out of reach initially. You can use the tips above in step 4 and save up $1K fairly quickly with some hard work.
That way instead of resolving to get out of debt and then not having a penny to your name (because you put it all toward debt), when an emergency happens you have m-o-n-e-y to use. That thousand dollars makes a great a weapon against Murphy.
One of my readers Adam experienced just that:
“I remember the first time I needed a car repair after building up a $1,000 emergency fund. My gut reaction was a sense of dread and panic, because I couldn’t possibly think of how I was going to find the couple of hundred dollars I needed to get it fixed. My wife had to remind me that we had $1,000 stashed away for that very reason. It was incredibly liberating and calming to just be able to go to auto shop around the corner and have a fixed car in a few hours with no hassle and no worry.
I think that’s the big reason for the $1,000 baby step. It’s not much in the grand scheme of things, but it will cover many of the most common emergencies — a car breakdown or a doctor’s visit when you don’t have insurance, and it’s enough to replace or repair most household applies, including your stove, refrigerator, washer and dryer, and computers. And even if the unthinkable happens and a bigger emergency fell in my lap when I only have $1,000 set aside, I have a lot more options with $1,000 at my disposal than I do with none.”
That’s a whole lot less depressing than pulling out the credit card (that you just worked hard to pay down a little) and instantly going deeper in the hole.
If $1K seems like an impossible amount, start by setting aside something for emergencies instead. Any amount, because any amount is better than nothing.
Once you have it, what should you use your emergency fund for?
I covered this a little bit already earlier, but it’s worth talking about in more detail. It’s really important for you to decide ahead of time what you will consider an emergency.
If you look in the dictionary, you’ll see that an emergency is defined as “a sudden, urgent, usually unexpected occurrence or occasion requiring immediate action.”
That should mean things like disasters you need to prepare for.
Unfortunately, too many of us take that to mean “something we forgot was going to happen”. You know, like needing new tires for the car because the old ones eventually wore out, or getting new clothes for the kids because the new school year is about to start and they’ve outgrown their old school clothes.
To avoid stress, “emergencies” like those should gradually get added to your spending plan. (Aka your budget.) This is true even if they end up in broad categories like “car repairs” and “school expenses” or “clothing” instead.
Eventually, your emergencies fund will only be for things that you believe truly do constitute an emergency. For us, that’s job loss. (You might choose to include more things.)
The thing to remember though, is that a thousand dollar fund is just the beginning. The projected costs of the things you decide to include will dictate the eventual size of your own emergency fund.
How big of an emergency fund should you have?
Once you’ve built up your thousand buck emergency fund, you may want to increase it. But how big of an emergency fund should you have right now? The answer depends on:
- how you feel about it
- your situation
- and your goals
So here are a few things to consider.
Do you just want a large emergency fund, such as a year’s worth of expenses? Know that building that is going to slow down your debt repayment. But since personal finance is personal, you get to decide what’s right for you.
Do you see an emergency coming on the horizon? (For example, potential layoffs, big medical expenses, a poor economy, etc?) If so, really hunker down and set aside as much as possible toward those. A large emergency fund makes a lot of sense in that case.
If things look fairly rosy and and your main goal is to become debt free, you’re probably going to get more bang for your buck by knocking out high interest debt first. (Instead of letting many many thousands of dollars sit in a savings account.)
If you decide to stick with $1000 while paying off debt, go at your debt hard and fast, because $1000 really isn’t a very large safety net. (But it is a great start!)
No matter what you decide, the important part is focusing, and going all-in on whatever you want to achieve. Because if you just work halfway on one thing and halfway on another, chances are you won’t see enough progress in either one to stay motivated.
So focus and see things through, because while emergencies happen, debt doesn’t have to.
An emergency funds eases the transition away from using debt
Of course, having at least a $1,000 emergency fund gives you a little peace of mind. It helps ease the transition, and makes it less likely that you’ll keep a credit card “just in case”, because now you have money to use in those “just in case” situations.
(It’s also a good idea to cut up your credit cards when getting out of debt.)
And a funny thing happens when you have money. You know that the money is there for emergencies, but when an actual emergency occurs, you may feel reluctant to use the fund. That’s a normal feeling, but that’s what it’s there for.
Don’t feel bad if you have to use it, but do use it as motivation to find other ways to come up with additional cash. You may find ways that may not have occurred to you if they had an “emergency” credit card laying around the house.
So get started with building that thousand dollar emergency fund today. You’ll be so glad you did. Happy saving!
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