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Did you know the average American is unable to pay for unexpected expenses of over $500? This statistic may be shocking, but it is a sign of the times. The average person has allowed lifestyle inflation to grow out of control since the mid 1990s, and as a result, many American families are spending more money than they earn on a monthly basis. If you find yourself in a similar situation, it is time to build an emergency fund to protect yourself from future financial disasters.
Many financial experts recommend $1,000 as the starting point for developing an emergency fund. You may feel secure with a smaller emergency fund if you earn less than $20,000 per year, or if you are a high income earner, you may wish to bump up the size of your emergency fund. The following advice will help you take several steps to build an emergency fund of $1,000 and beyond.
Why You Need an Emergency Fund
Some financial experts scoff at the concept of an emergency fund. They argue that your money is better applied when invested in your 401k, IRA, or other retirement accounts. Mathematically speaking, there is no disputing this fact; the interest earned on wise investments should always outpace interest earned on savings and money market accounts.
So what’s the catch? While interest earned on solid investments like mutual funds, index funds, or even CDs is higher than savings and money market accounts, these earnings pale in comparison to the devastating effects of high interest rates associated with credit card debt. Simply put, liquid cash in an emergency fund is the simplest way to ensure that you do not waste your hard earned money on credit card debt each time an emergency arises.
Everyone should build an emergency fund for this reason alone; peace of mind and increased confidence are icing on the cake!
Emergency Fund Basics
When looking to build an emergency fund or grow an existing fund, everyone should follow a few universal principles. First, you should keep emergency fund money separate from your primary checking account. This will ensure that a sale at Target or DSW doesn’t become an “emergency.” Second, it is best to keep your emergency fund in a high interest bearing savings or money market account. The goal is not to build wealth in your emergency fund; it exists to protect you from going into debt when true emergencies occur.
If having emergency fund money within close reach (electronically or otherwise) is tempting for you, you have options. Opening a savings account with a different bank is one option.
Here’s another option: For those who are unfamiliar with the platform, Digit is a free and secure service that helps you save money each day by transferring only what you can accord directly from your checking account to your savings account. It’s an efficient way to be sure that your emergency fund will continue to grow over time.
And you can access your saved funds as soon as the next business day. Click here for more information or to sign-up for FREE.
How to Build An Emergency Fund – 5 Simple Ways to Save $1,000 Fast
If you are like many Americans, your current budget may already be stretched beyond comfort, leaving you feeling like it is impossible to build an emergency fund. The tips ahead will offer creative solutions to both increase your income and reduce both necessary and unnecessary expenses so you can save $1,000 fast.
1. Review Your Insurance Policies
I get it – reviewing your insurance policies comes in slightly behind watching paint dry in the weekend fun rankings. But it remains the simplest and easiest way to save hundreds of dollars in under an hour.
If you’re like me, you setup your homeowner’s, auto, and life insurance policies long ago and thought you were set for life. The truth is that you should be reviewing your policies on an annual basis, as you could be leaving savings on the table (or worse – you could be underinsured!).
You can receive a quick online quote for auto insurance from Esurance. Most consumers are able to save significantly by updating their auto insurance to reflect their current protection needs. Check out your savings now!
If you currently are paying for whole life insurance, you can potentially save HUNDREDS of dollars per month by switching to term life insurance. With term life insurance in place, you’ll not only save money; you will also increase your overall death benefit if you should pass away while your policy is in effect.
If you are in good or fair health, don’t smoke, and are not employed in a high-risk career, you can most likely pick up a $500,000 term life insurance policy for the monthly cost of a few deep dish pizzas. Just be sure that you do not cancel any existing policies until you have replacement policies in effect!
I recently worked with HealthIQto lower my term life insurance rates and saved myself over $200 annually on a sizable life insurance policy guaranteed to protect my wife and son for the next few decades. It was a huge win!
I can’t say enough great things about HealthIQ – so give them a chance to give you a no-obligation quote.
Related: Term Life Insurance Vs. Whole Life Insurance
POTENTIAL SAVINGS: $200-400
2. Return and Sell Unused Stuff
The other day I saw a friend advertising brand new clothes with price tags intact for sale on her Facebook page. To my amazement, mutual friends were snatching up these high end clothing items left and right. In some cases, they were paying handsomely!
If you have unused clothing or other items that you no longer use, selling them via social media can be a great way to build an emergency fund in a hurry – and with little effort! Simply lay out items in a brightly lit area of your home, use your smart phone to snap pictures of each item, and upload them in a new Facebook album. Whenever possible, take advantage of your friends’ brand recognition habits to drum up interest.
Before you sell unused items online, be sure to check store return policies first. Depending upon when and where the items were purchased, you may be able to receive a cash refund or store credit, both of which can free up money in your monthly budget. A few months ago, my wife and I were able to return a few unused items for cash even though we had purchased them several months ago; it never hurts to try!
POTENTIAL SAVINGS: $100+
3. Drive with Uber
You work hard during the week, and the last thing you probably want to do is work more on the weekends. I never said it would be easy to build an emergency fund – just simple and fast. If you crave the flexibility to work only when you want to work, Uber may be just the side hustle you need to build an emergency fund!
Most of the time, your car is not an asset – Uber has changed that forever! As long as you have a clean driving record and suitable vehicle, you can earn several hundred dollars driving for Uber. You have full flexibility to set your own hours at the push of a button. Once you get started and earn favorable reviews, you’ll be on your way toward higher earnings in a hurry. It only takes 4 minutes to sign-up and get started!
Don’t want the predictable schedule of pizza delivery or the potential awkwardness of driving strangers around as an Uber driver? UberEATS is the program for you!
Take trips for a few hours in the mornings, every night, or just on weekends – you set your own hours. You are your own boss and you can choose when and how much you work. And unlike the standard Uber program, you don’t even need to have car – a bike or scooter work, too, though you’ll likely earn more if you have a car.
It's quick and easy to sign-up with UberEATS, and you can be on your way to making more money soon.
POTENTIAL EARNINGS: $200+ per day
4. Negotiate Better Rates on Phone and Cable Bills
It is true that many companies have expanded training of retention specialists, making it harder than ever to negotiate better rates on phone and cable bills. But if you’re willing to be persistent and step up your game a bit, you can still pull the right strings and save money on these services. Why? It is much cheaper for companies to lower your rates in order to retain existing you as a customer than it is to invest in advertising and promotion designed to recruit new customers.
Connecting with the right people is the key to negotiating savings which are significant enough to help build an emergency fund. Below you will find the best customer service phone numbers to call when negotiating your rates.
COMCAST: 1-800-XFINITY – When prompted, say “Discontinue service.”
AT&T Uverse: 1-800-288-2020
Remember to be polite, emphasize your history as a loyal customer with the company, and make it clear that you have a promise of cheaper rates with their competitor.
Ask them to reduce your rates to match their competitor. If you do not get what you want, politely ask to speak with the representative’s supervisor. You may have to be persistent and work your way up the chain of command, but it will pay off!
POTENTIAL SAVINGS: $100+ per month
5. Pet Sitting
If you love pets and are willing to welcome four-legged visitors into your home, pet sitting and walking can be a fun way to build an emergency fund. In fact, you could earn $1,000 in under a month! A few of my friends registered with Rover.com and list their dog walking and sitting services on their website. Because they are clearly dedicated to providing safe, loving dog care in a hospitable home, they have been very successful.
To get started with Rover, visit this page and fill out the brief form. From there, you’ll be directed to create a profile, upload pictures, and complete a background check. The Rover team will manually review your application within one week, and once you are approved, you can begin accepting requests and start making money! Rover is active in over 10,000 cities nationwide, and you can easily set your own schedule and rates using their site or app. It is the easiest way for animal lovers to build an emergency fund!
POTENTIAL EARNINGS: $1,000+ per month
Don’t allow yourself to continue on without an adequate emergency fund. Try a few of the ideas above and you’ll save $1,000 in no time.
Let’s face it: financial emergencies are bound to happen in life, but you can protect yourself and your family when you build an emergency fund. By updating your insurance policies, automating savings each month, selling or returning unused stuff, driving for Uber, negotiating phone and cable rates, and becoming a dog sitter with Rover, you can save $1,000 in a hurry.
What are you waiting for?
Recommendations to Boost Your Savings
CIT High Yield Savings: Looking for a great place to park your emergency fund and earn more than a paltry .05% interest return? CIT Bank offers 1.55% on their High Yield Savings Accounts and only requires a $100 minimum opening balance! This crushes most other savings accounts by 10-12x!
CIT High-Yield Money Market: If you’re looking for an even better place to sock away your emergency fund or sinking funds, check out CIT’s High-Yield Money Market Account. Their 1.75% rate will put your fund to work in a hurry, and with a $100 minimum account opening balance, anyone can get started!
Ibotta: Ibotta is my favorite app for saving money and earning cash back on my regular grocery purchases. They recently upgraded their interface, making it even easier to save money. You can sign-up, earn a $10 welcome bonus, and earn money for referring your friends, too!
Acorns: I have been using Acorns as an experiment in micro-investing for several months and watched my account balance steadily grow. If you feel like you don’t have enough money to invest, Acorns is for you!
You can start with very small deposits and work your way up over time, if you choose. And if you sign-up using my link, you'll start off with $5.00 in your account automatically!
Digit: Digit is a personal savings assistant designed to help make saving money easier and automatic. Their mobile app and simple platform helped me and my wife save over $1,500, and we used the money for a vacation. Check it out here.
Mrs. Picky Pincher saysMarch 7, 2017 at 9:00 AM
Yaaaaas to all of this! Essentially you have to find ways to either cut your spending or increase your income. I started bringing in a little moolah on the side by taking up freelance work online (I use UpWork), and that’s been nice, too. Cutting expenses was most effective for us, though. We lowered our energy bills, lowered phone bills, got rid of a car payment, and ate at home more. It worked, and now we have over a months’ worth of expenses in savings.
Hero saysMarch 7, 2017 at 2:24 PM
A combination approach works well for a lot of people. That’s some impressive hustle in cutting expenses, Mrs. Picky Pincher. Just wondering – how large do you plan to grow your emergency fund? I like to keep ours near 3-6 months’ of expenses, though it is currently lower than that target.
Cassie saysMarch 7, 2017 at 1:30 PM
Yes, the cable and cell phone bills are the first to consider if you’re trying to save money. They are huge bills and I don’t know how we’ve come to accept this. Do whatever it takes to establish an emergency fund, it is crucial.
Hero saysMarch 7, 2017 at 2:25 PM
I think it’s a by-product of an instant gratification society, Cassie, but you are right – an emergency fund is crucial. Thanks for your comment.
DS saysMarch 13, 2017 at 12:24 AM
Great ideas. This is the reminder I needed to check for less expensive auto insurance. I have three letters sitting on my desk from various companies offering to beat my current provider.
Michael @ Financially Alert saysMarch 13, 2017 at 3:48 AM
Nice list, David! I love negotiating with the cable or telcom companies to see how much I can squeeze back out. 😉
There’s always some way to generate more cash if you’re determined.