How to Actually Save an Emergency Fund When You’re Broke

Every financial planner will tell you how important it is to have an emergency fund in your personal budget. And no one would dispute that’s a great idea. But what do you do if you are FLAT BROKE, burdened with debt, and living paycheck-to-paycheck just to keep the lights on? We have some ideas for you or someone in your life who is having trouble moving a fine-sounding theory into a lived reality.

What Even Is an Emergency Fund?

Think of an emergency fund as a credit card you pull out only for emergencies: essential car repairs, a plumber to stop water from spraying all over your kitchen, or a replacement phone after you dropped yours in the toilet. Not “it’s been a hard day, I deserve to eat out,” or “if I don’t go see Ed Sheeran now he may not come back to my city for three years.” (Sorry. It gives us the shivers to say it. But even Ed is not an emergency.) Your emergency fund is like a credit card you fund so you don’t have to pay interest on it. You are borrowing from future you, who will have his or her own needs that will not be taken care of if you don’t repay the loan. 

The Alternatives Are Not Good

In the absence of an emergency fund, you’ll have to borrow money by taking out a credit card, a bank loan, or hitting up friends and family. All of those are bad habits. Credit cards often start you at a low credit limit that may not be enough to cover a large need, such as a car transmission. Bank loans take time to process. If you don’t have well-established credit or collateral, you might get turned down. And drawing from the people in your life is a shallow well. Too many times of that and you’ll find it running dry real fast. 

Weird Social Obligations

Even if you repay that loan super fast and life goes on, it can still create weirdness in your relationship that both of you will feel for a long time to come. And in some cases, people will use situations like this to create unspoken . . . or spoken . . . social obligations: “help me move,” “come to Thanksgiving,” listen to my problems.” They loaned you a thousand bucks. How can you say “no”? So, if you’ve been thinking out loud about borrowing from a  friend, just . . . don’t.

How Much Should You Save?

Standard advice is to save 3-6 months’ worth of living expenses. But dang. If you had that kind of money, you wouldn’t be reading this article. So start small. If it’s a dollar, it’s a dollar. That’s perfect. Put it in a jar and don’t touch it. Knowing it is there will make you automatically happier.

But see if you can finagle $100. Parlay it into $500. Work it up to $1,000. Now you have a fund that can handle tons of minor emergencies. Over time you’ll grow it. BECAUSE YOU’RE NOT GOING TO SPEND IT. But in your first year of building this fund, a thousand dollars is a good starting goal. 

So what does “finagle,” “parlay,” and “work it up” mean? We got you, bud. Here’s some ideas:

1. Make Three Budgets

First you have to know where you’re money’s currently going. For clearer decision-making, divide it into three budgets:

• Non-Negotiables: Make a list of your regular monthly obligations that are fixed amounts and must be paid to keep you alive and off the streets: rent, car payment, student loan payments, etc.
• Negotiables: Make a separate list of things that are essential but have some wiggle room. Food, for example. Gotta have it, but you can decide whether to eat Spam sandwiches or fillet mignon. 
• Nonessentials: This third list is for things that are things you want, maybe even think you need, but that if you’re really honest, you could survive without: New clothes. Eating out. A gym membership. And yes, dare we say, even Ed Sheeran. This stuff is that fantasy castle on the hill you’re aspiring to, but can’t have all at once. 

2. Make the Emergency Fund Essential

Now add a monthly payment into your emergency fund as a budget item in your essential list. This requires a mentality shift. It is not a luxury, it is as essential as a life preserver is on a boat. So have $50-$100 a month automatically deducted from your account and deposited to a separate savings account operating alongside your current account like a perfect duet. Don’t think about it, just know it’s growing there, getting strong enough to support the weight of bigger and bigger crises.

3. Negotiate the Non-Negotiables

Yes, the non-negotiable list is non-negotiable. You do have to pay your rent. BUT with your eyes closed . . . imagine what it would be like to live in a less expensive place? Would you consider taking a roommate? Could you get a cheaper car, with lower insurance? Can any of your debts be renegotiated with lower interest rates, lower payments, or some other improvements in terms? You might find some wiggle room, not to spend more, but to save more. 

4. Negotiate the Negotiables

Now go through that negotiables list and figure out how you can economize. Maybe cooking more at home and buying in bulk from a discount store. And if you are truly below the poverty level, which might include someone who just graduated from college, for example, don’t hesitate to make use of social services and private charities such as food banks. There is no shame in using these for temporary assistance while getting on your feet, and building an emergency fund that can prevent you from becoming permanently dependent on that kind of help. You’re not saying “I don’t care.” You’re saying, “I care enough reach out for help.”

5. Negotiate the Non-Essentials

Now for that non-essential list. We know that is where all the fun stuff is. The stuff you really don’t want to give up. The ginger dreamboats with British accents singing only to you in a crowd of 10,000. This is what makes life liveable. We get it. So you do not have to give up everything in this list. But if you do not have an emergency fund yet, you also cannot afford all of it, any more than if you didn’t have your rent money together yet.

So yes, you want to build a life that is a perfect symphony of things you love, but scaled to your budget. You might keep one big thing from this list as a long-term project to save for. Other things on the list you could find a cheaper way to do; attending free or low-cost community events for entertainment, for example. And some things you can drop altogether. Instead of paying $100 to have your dog groomed, can you have a shaggy dog? Or groom it yourself even if it’s imperfect, but improving?

6. Stack More Cash

Only after doing this thorough budget work should you start thinking about making more money. Like helping an injured patient, you need to stop the bleeding before infusing more blood.

So when you’ve devised the lowest budget you can live on and included some very reasonable choices about negotiables and non-essentials, you can look at your income and decide whether you need to start looking for a new job, start some side gigs, or both. And when that additional income starts coming in . . . you don’t increase your spending. You increase your saving. And now you’re working that fund up to the 3-6 months of living expenses the experts recommend.

We didn’t say it was easy. But step by step, you can take the best advice of financial experts but configure it into a life that perfectly fits the shape of YOU.