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How to Build an Emergency Fund When You Live Paycheck to Paycheck

Mia Barnes  |  September 5, 2023

Need to break the paycheck to paycheck cycle? Try these tips to start and build your emergency fund to make ends meet every month.

Living paycheck to paycheck often feels like walking on a financial tightrope. Every dollar has a purpose and unexpected costs can disrupt your balance. An emergency fund is a great way to respond to those unforeseen fees. Start building an emergency fund today by using your expert budgeting skills with a new perspective.

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Anyone can create a safety cushion for their future with determination and the right strategies. Use these tips to start and build your emergency fund so your financial stress becomes more manageable.

Write Out Your Budget

You know exactly how to cover essentials like rent, food and utilities. When you have some free time, revisit your budget and look at any discretionary spending that might happen spontaneously. These purchases could be things like buying a soda at the gas station while filling up your car or adding a snack to your grocery run to enjoy on the way home.

Everyone deserves little indulgences, but that money you’re spending on impulse buys could be the best way to start building your emergency fund. Note the types of discretionary spending that happen most often. You could save those few dollars by making simple changes like cooking at home more or looking for weekly deals at your grocery store.

If you stumble upon unexpected money like a tax refund, resist the urge to spend it all. Split it in half and channel a portion of it into savings or debt reduction. This proactive approach will build your savings over time, help you tackle debt that prevents you from saving and bring you one step closer to financial freedom.

Consider a Side Gig

The 9-to-5 grind isn’t the norm anymore. According to a recent Bankrate survey, almost 40% of adults have a side-hustle, or a job in addition to their full-time gig. That number grows the younger you are: 53% of Gen Zers and 50% of Millennials report having a side-hustle. Consider a side job if your current budget doesn’t allow for savings. Some great side gigs for women include babysitting in your neighborhood, selling on Amazon, online tutoring, or driving for a rideshare service. 

Open A Savings Account

Getting excited about building your savings may feel challenging when you’ve never seen the account accrue much money. People used to obtain savings rates as high as 8% in the 1980s, but now a traditional savings account might make a few pennies per year.

The good news is you can consider another type of account — a high-yield savings account. These accounts average interest rates of around 5%, so you can make much more money per year on the funds you’ve set aside for emergencies. Compare interest rates offered by various financial institutions to get the highest annual yield for your hard-earned savings.

Once you have an account with a helpful interest rate, consider setting up an automatic weekly or monthly transfer. Chief financial analyst at Bankrate, Greg McBride, recommends this strategy: “Any surplus can be transferred to savings, giving you a second bite at the savings apple.” Transferring a few dollars every month will give you reliable, long-term growth while you focus on your other financial goals.

Refinance Your Debt

Debt can be a significant barrier to saving. You might need to focus on slashing your debt before having extra money to put away for emergencies. For those burdened by student loans, it’s worth looking into the new SAVE plan, which stands to save Americans more than ever before.  

You can also look into a balance transfer card, which involves moving your debt from your regular high-interest-rate credit card and onto a card that has a much lower rate (or even a rate of 0%) for a certain period of time — typically around a year. Many cards charge a fee of 3% of your balance to complete the transfer. Your goal would be to pay off the entire balance by the end of that promotional period. That’s because once the promotion expires, the interest rate will rise and might be even higher than the one on your original card. Then you’ll be charged that higher interest rate on whatever balance remains.

Before you sign up for one, do some self-reflection on your spending style. Can you commit to paying off your balance during the promotional period? Will a 0% interest rate tempt you to add more onto your debt? Compare different offers for balance transfers, and run some calculations on whether the fees and potentially higher interest rate will be worth it.

Renegotiate Your Bills

Your monthly bills might be the source of your financial stress, which is why they’re worth revisiting. Can you cut back on certain subscriptions? You could also request a free energy audit from your electricity provider to identify savings opportunities. Insurance is another area where savings might be lurking. When your policy comes up for renewal, don’t just auto-renew. Instead, shop around, compare rates, and see if bundling multiple policies may offer a discount.

You’re not alone if you have existing medical bills that drive your financial stress. Research shows only 62% of adults have confidence in their ability to afford health care. Consider contacting the hospital or clinic managing your bills to discuss payment renegotiations. You can also request an itemized bill for your previous care, which often makes bills shrink as the billing department finds errors.

Every phone call and question is worth your time. Saving even a few dollars could get you closer to a stress-free financial situation.

Patience Is Key

Building savings when living paycheck to paycheck requires patience. Those contributions will accumulate even if you can only save a little at a time. Stay motivated and remember — every bit counts.

Instead of equating a good life with luxury, embrace living a soft life. This philosophy emphasizes balance, well-being and finding contentment in simplicity. Adopting this mindset, you’ll find every dollar saved brings you closer to a life of genuine fulfillment.

And as you ask yourself whether or not your money is working for you, know that you don’t have to figure it out alone. Consulting a financial advisor can provide clarity, ensuring you make informed decisions that align with your financial goals.

Taking Control of Your Financial Future

The path to financial security often feels overwhelming, especially when living paycheck to paycheck. However, you can pave your way to a robust emergency fund with determination, the right strategies and a touch of perseverance.

Every decision you make, every dollar you save and every change you implement brings you closer to achieving financial peace of mind. The journey to financial freedom isn’t about making massive leaps but taking consistent, small steps. Whether cutting back on a coffee a week, renegotiating a bill or setting aside a portion of a surprise bonus, these actions accumulate over time.


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