Building A Safety Net: How To Grow Your First Emergency Fund

As Congress continues to debate the $1.9 trillion stimulus bill, another study outlines just how narrow people’s safety nets currently stand.

In a survey of 2,200, Money & Morning Consult found that 30% of non-retired respondents expect to use their retirement accounts this year in order to buy necessities or pay down growing debt. This borrowing comes after the same survey found that 35% had tapped their retirement accounts in 2020.

The full depth of the COVID-19 economic impact continues to unfold. First time unemployment claims showed a 132,000-person decline for the week ending February 20 compared to the week prior, offering some positivity that a corner may be turned since it coincides with an increase in vaccine distribution. But, at the same time, the first eight weeks of 2021 have seen more first time claims than the final eight weeks of 2020. And, even with the decline, 710,000 people still had to file such claims in the most recent report.

This level of uncertainty, which has played out over the past year, has only weakened the few safety nets people had. Even before COVID, though, Americans showed a fairly perilous level of emergency savings. Bankrate released a survey in January of 2020, finding that only 41% of people could cover an unexpected bill of $1,000 without putting it on credit card or borrowing from family or friends. This not only highlights the importance of the stimulus bill, that would provide another cash infusion to people that have lost their jobs to COVID restrictions, but also the importance of building an emergency fund.

If you’re in a position to build that emergency fund, it’s the first step into creating financial independence. With that security in place, which typically covers three-to-six months’ worth of expenses, then you can feel free to move unused money into more wealth building tools.

Protect Yourself From Yourself

In order to build an emergency fund, one of the first steps is to understand where you’re overspending. Looking at your monthly spending, where do you know you splurge? Where can you cut back?


Financial behavior expert Wendy De La Rosa and founder of the Common Cents Lab detailed an interesting tactic in order to curb some unnecessary spending, which can then be funneled into the savings account. De La Rosa used to spend $2,000 or more on ride-sharing apps as she commuted across New York City each month. She wanted to get the spending under control but couldn’t. Finally, instead of using her credit card on the app, she linked a $300 pre-paid debit card at the start of the month. This would force her to only spend what she budgeted on rides, preventing over-spending.  

Taking a similar tactic to wherever you overspend can provide you with a nice infusion of cash. You then can funnel that into a high-yield savings account at the end of the month.

Evaluate Your Safety

Not all jobs have the same level of protection in the marketplace. Someone working in the technology field and someone trying to grow their expertise in rare books are going to have vastly different job prospects, if the company they work for downsizes. The person working in tech and living on the West Coast could find a job very quickly due to opportunities. The rare book specialist may have to wait a little longer since fewer opportunities exist in the field. The same dynamic plays out between those with full-time jobs and contractors.

Understanding where your expertise puts you from a job search front will determine how much you need to save. When Glassdoor evaluated this back in 2017, they found that government jobs take the longest, 53.8 days, from interview to hire. Internet and technology jobs took 24.4 days and real estate gigs took 17.2 days. But all of that changes, as the economic conditions change as well.

For those with relatively steady jobs and little turnover, a three-month emergency fund might work. If you know you were to lose a job it will lead to a long search, then six months makes more sense. And contractors, which have highly volatile incomes, might do best sticking to six months in the emergency fund.

Save Those Refunds

With tax time around the corner, millions of people will be submitting their taxes and receiving a refund. On average, people saw a $2,707 refund in the 2020 tax filing season and $2,476 refund in the 2019 season. The more of the refund that you stock into savings, the faster you will reach that emergency savings mark. According to a survey by, 31% of those receiving a refund last year planned to move it to savings and 24% expected to pay down debt.

Don’t only do this with your tax refund, though. Anytime you earn an unexpected windfall, whether it’s a bonus at work or a reimbursement of some kind, place the majority of the funds into the savings. It will be like you never had them in your spending account.

By doing so, the money will provide a significant boost to your emergency fund goals. With that peace of mind, you can then invest for the future.

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