5 Steps to Rebuilding Your Emergency Fund

April 15, 2009

Meeting your emergency fund goal is a huge accomplishment. So, when it comes time to spend the money for an urgent or unexpected purpose like paying a big tax bill, draining the fund you worked so hard to build can be extremely disheartening. Having to fork over funds you've spent several months saving is a letdown and it's easy to lose momentum. The best way to stay on track is to revise the road to rebuilding your emergency fund; here are simple guidelines for doing just that.

Set a two-part goal: how much money you want to save, and a deadline to squirrel away that amount.
Play around with my savings calculator to help you determine the specifics.
If you'll need to save more money per month than you have been, consider tracking your spending for a month for a clearer picture on where you can cut back.
Adjust the amount you have automatically transferred from your checking to savings account each month to reflect your new savings goal.
Redefine what is an emergency, and only use your fund for those predetermined purposes.

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6 Comments

aimeeb 4 years 4 weeks

I'm always in "save" mode.

Spectra 4 years 4 weeks

expresso-not everyone pays in during the year for taxes. My brother-in-law and sister always end up owing because he's an independent contractor, so he doesn't have any tax withheld all year. The first year that they had to pay in, they did have to drain their savings and file an extension so they could pay it all, but now what they do is to set up a sort of escrow account for it. They set aside what would have been taken out in taxes every week into a special account and then use it to pay in.

expresso14 4 years 4 weeks

Draining your emergency fund to pay taxes means you need to take another look at your withholding - the IRS website has a handy calculator to doublecheck. I have an emergency fund (for true out of the blue emergencies) and a rainy day fund for the things that will happen (like car stuff) but I don't know when. Extra money gets split between the funds, plus a small share goes into my 'fun' fund.