Creating an emergency fund is one of the smartest things you can do with your money. If you lose your job, wreck your car, or have any other expensive surprise, these savings It can help you get over it and avoid accumulating debt.
But what do you do when an emergency forces you to start from scratch?
Eating through your savings during a stressful time can be frustrating. But remember: this is the purpose of money. You’ll be fine – and your savings can be rebuilt. Here’s what to do.
Set an achievable goal
Before you start replenishing your savings, it’s important to make a plan first. Paul Sunden, CPA Accounting Expert and Tax Strategist at CPA Real Estate. Instead, start small (and realistic).
For example, instead of saying “I need to save up to $10,000 ASAP,” try to focus on saving one month’s expenses. Once you’ve accomplished that, set your sights on another month of savings. It may take some time, but you’ll eventually get back to the $10,000 you started with.
Evaluate (or start) your budget
Once you know how much money you need to save, get your budget in order so you have a roadmap for getting there. “Start by reviewing your financial accounts and make sure you know where you stand in terms of your net worth, or assets minus liabilities,” said Britney Castro, CFP with Mint. Then see how the savings goal fits into the equation.
If you need some help, a free personal finance app like Mint can do the heavy lifting by aggregating your transactions, providing a quick snapshot of your net worth, creating custom budgets and tracking your progress. “By using your budget as your tool, you can find a plan to help you save more by eliminating unnecessary spending or increasing your profits,” Castro said.
Cut unnecessary spending
Speaking of spending cuts, it’s a painful but crucial step in the process. Find ways to reduce discretionary spending (hint: these are non-essential expenses that take up a large portion of your income). Perhaps you can buy in bulk and experiment with meal prep. Or reduce your streaming services to include ads. You might give up your car for public transportation or move into a smaller apartment. The level of sacrifice you make to reach the savings goal is up to you.
Keep in mind that you don’t have to live for less forever. The goal is to increase your savings as quickly as possible so that you have a financial safety net in the event of another hardship.
Take a break from your 401(k)
While you’ve likely heard that saving for retirement should be a top priority, it’s okay to pause your retirement savings while getting your short-term savings back on track. If your employer offers a match, it’s smart to contribute the minimum to earn it (hello, free money), but don’t worry about saving more than that until you have an emergency provident fund again.
Think of a side hustle
If you want to increase your savings, the best way to do so is to increase your income. But this does not necessarily mean getting additional work or a second job. “Consider looking for a side job that will allow you to earn some extra cash to replenish your savings,” Castro said. You don’t even need a special skill or talent to do this. Nowadays, there are a myriad of ways to earn some extra cash on the side, like selling items you don’t need anymore on a consignment, working as a virtual assistant, a nanny on the weekend, freelance writing, walking dogs — you name it. You will,” she added. However, there is one thing to keep in mind: You may need to set aside some of your extra earnings for taxes.
Put unexpected money directly into savings
Whether you’re getting a bonus at work, a tax-time refund or a generous birthday check, use the windfall to boost your savings. “While you are tempted to use the money to treat yourself, you shouldn’t,” Sunden said. Instead, he said, take the opportunity to be strategic. “If you keep doing this, you will be surprised how quickly you can replenish your savings.”
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This article originally appeared GOBankingRates.com: draining your savings? 6 steps you must take to rebuild your emergency fund
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