Building an Emergency Fund on a Tight Budget

Jackie Lam

By Jackie Lam
Jackie Lam is the creator of Cheapsters, where she helps freelancers get by in the gig economy. She lives in L.A., where she is on the perpetual hunt for the perfect breakfast burrito.
Posted on 08/06/2019

I really wouldn't be able to afford any repairs if my car broke down. Ugh, how much longer can I ignore this toothache? What if I lose my job? Negative self-talk creates anxiety about your financial future. And while saving an emergency fund for a rainy day is something you know is essential, trying to stow away some extra cash may feel like an ever-elusive goal. When I landed my first full-time job after college, I was raking in about $30K a year. I moved out of my mom's house and found a tiny studio in West L.A. It was my first time living by myself, and I was so terrified of losing my job and having to move back home that I saved like a fiend for an emergency fund. I managed to sock away about $5,000 in about 10 months. While it was not a small fortune by any means, it was enough to tide me over in case I was unexpectedly out of a job. Starting to build savings for a rainy day is not easy, especially if you're operating on a tight budget and have competing priorities. But it can be done! Here's how to get started:

Prioritize Your Goals

At the time, my impetus for having an "rainy day" fund was pretty basic: I simply didn't want to have to move back home. When I was finally able to move out, it was a significant stride toward self-sufficiency. Breaking my lease and having to go back home would have felt like failure—and I refused to admit defeat. Sure, there were other things I wanted to do: I wanted to travel a bit, be more aggressive about paying off my student loans, and afford nicer things. But I knew not having an emergency fund would make me possibly resort to using a credit card, and I didn't want to do that. It was more important to me to prove that I could make it on my own, without having to ask for a handout from my family. As financial goals go, I've found that being super specific about what you want and how you'll get there helps tremendously. Instead of saying, "Gee, it would be nice to save and have an rainy day fund someday," go on a little date with yourself, and figure out how much you would like to save by when. Don't forget to do the math to figure out how much you need to save by when.

Automate Your Savings

As a longtime personal finance nerd, and when it comes to what's effective for saving money, I've found that automating your savings takes the cake. There's very little work involved, and it gets you in the habit of saving consistently. Slow and steady wins the race, right? If you're feeling tenuous about automating your savings for fear that you lack funds, start super small and gradually boost the amount you sock away. It's important to get into the habit of saving every month and being comfortable with having that money funneled into a separate account.

Get Creative with Curbing Spending

Before saving money became all the rage and frugality became hip (c'mon, you know it is), it had a bad rap. For example, take the TV series Extreme Cheapskates. Often frugality is misinterpreted as living a deprived, dull existence—quite the contrary. I found that frugality is an exercise in creativity. And if you approach being frugal as a game, you'll have more fun. Can you come up with alternatives? Multiple uses? Can you do without something you've used forever? How long can you go without restocking an item? That first year I explored saving money in nearly every area of my life. I went vegetarian, partly because I knew it was less expensive to live that way. I held off on buying a couch. When you cut back, make sure anything you manage to save goes directly toward your emergency fund. There's no point in saving when it just gets squandered. For starters, focus on what's easier for you to give up and go from there. Remember: You only have so much mental capacity and energy to devote to daily decisions. Be judicious about what you hone in on.

Play the Earning Game

You only can save so much, but your potential to earn is limitless. Any opportunities for making extra cash can go directly into your emergency fund. I've found that earning side income by doing things that are easy, you enjoy doing, or you're good at, helps you stay motivated. I didn't do too much side hustling that year, but I did test proctor at a nearby university. It was an easy, low-stress job, and I usually could get some reading in while working. I managed to sock away an extra $1,000 by moonlighting a few weeks during the year. And what I didn't need for my rainy day fund I used toward another short-term goal, like buying a new computer. After the first year of surviving on my own, I eased up a bit and allowed myself some pleasantries on occasion. I saved to pay for a SCUBA certification and for annual trips to cities I've always wanted to check out. These were experiences I never could afford while in college, and it was empowering. I also continued my frugal lifestyle partly because I had fun living that way. While saving for an emergency fund does take discipline, it is entirely possible, even if you're on a tight budget.