It has been a year full of financial lessons. People in America and worldwide are getting their financial plans back on track after reeling from the global pandemic, layoffs and inflation. Chances are that you may have dipped into your investments, retirement savings or emergency funds to meet your expenses in the last year. 

According to a recent report from Betterment at Work, only 52% of Americans have a financial cushion to rely on in emergencies. That’s a drop of 7% from 14% in 2021. Other data from the U.S. Bureau of Economic Analysis reveals that the average personal saving rate is at an all-time low of 3.4%, a decline from 32%, in April 2020. 

If you are one of those who have depleted their financial savings, building an emergency fund from scratch may feel like scaling Everest. But fret not, because we giving you a step-by-step guide to rebuilding your safety net for whatever life throws your way in 2024.

Ways to Build Emergency Fund in 2024

1. Set Clear Goals:

Define why you want to build an emergency fund. Whether it’s to cover three months’ living expenses or handle unexpected medical bills, having clear goals will motivate will help.

2. Work on Your Budget:

A budget will tell you where your money is going. You can use this to identify areas where you can cut back and allocate a portion of your income specifically for your emergency fund. Determine your average monthly expenses, including rent, utilities, groceries, and discretionary spending to figure your discretionary income. 

3. Automate Recurring Transfers:

Set up an automatic transfer from your regular contributions to investments, loan payments, EMIs, etc each month. Automation will prevent you from making impulsive spending.  ensures that you prioritize your emergency fund without having to think about it, making saving a seamless part of your financial routine.

4. Start Small, But Start:

You don’t need to save a fortune overnight. Even $50 a month can make a difference over time. 

Let’s take the discretionary income example. Now, you might be tempted to save $2000 to fulfil your goal faster. You have to be realistic about how much you can allocate money to your emergency fund.

The ideal calculation is to divide your goal by the amount you want to allocate every month. This will help you know the timeline to build your emergency fund. For instance, if your goal is to have $4800 in your emergency fund, you will need to allocate at least 400 every month for a year. 

5. Side Hustles and Extra Income:

Nearly 8.4 million people in America had multiple jobs in 2023 according to the Labor Department. Of this 5 million held one full-time and one part-time job. Nearly 2 million had two part-time gigs. 

Considering side hustles, freelance opportunities or even two jobs is feasible. You can funnel this extra money directly into your emergency fund. It’s a proactive way to accelerate your savings without straining your budget.

6. Regularly Reassess and Adjust:

Life changes, and so do your financial needs. Regularly reassess your goals, income, and expenses. Adjust your savings plan accordingly to ensure your emergency fund remains aligned with your current situation.

If you reach your goal, do not stop. Continue your saving routine even if you think it is not necessary. You can form a new goal to go on a vacation or make a down payment for an asset like a vehicle or house.

7. Cut Unnecessary Expenses:

Review your spending habits and identify areas where you can cut back. Opt for homemade meals, cancel unnecessary subscriptions, and think twice before making impulse purchases. Redirect the saved money towards your emergency fund.

Resist the urge to dip into your emergency fund for non-emergencies. Remind yourself of the purpose behind this fund – to provide a financial cushion during unexpected situations.

8. Credit Card Rewards & Tax Refunds:

Several credit cards offer cash-back rewards of up to 2% every time you shop or pay your bills. Make every penny from your cash rewards count and put this in your emergency fund. 

If you make less than a certain amount per year, the IRS will most likely refund the taxes they took out of your paycheck. Placing this money in your emergency account will boost it by a significant amount. 

Building an emergency fund is a journey towards financial resilience and peace of mind. By following these steps and staying committed to your goals, you’re not only creating a safety net for the unexpected but also establishing healthy financial habits that will serve you well in the years to come. Here’s to a financially secure and empowered New Year!