Drained Your Emergency Fund? The 6 Steps to Rebuild It

So, you recently drained your emergency fund. Maybe you lost your job and had to use it to pay for expenses as you searched for another. Maybe a large unexpected medical emergency came up that you had to pay for. Whatever the reason was for using your emergency fund, it is vital that you rebuild it.

You have just gone through a situation that should show how vital an emergency fund is to a well rounded financial plan. It would be great if we could all go through life and not have any emergencies, but life is not that kind.

An ideal amount to have in your emergency fund is 3 to 6 months worth of expenses. If you have monthly expenses of $4,000, you would need an emergency fund between $12,000 and $24,000. The amount of time and effort that it will retake for you to rebuild your emergency fund will depend upon how much of it you drained out of your account.

For example, say that you had a 6 month emergency fund of $24,000. Your heating system in your home went out during the winter and you had to pay $8,000 to get it fixed. Would you need to add $24,000 back into your emergency fund?

Of course not. You would simply need to replace the $8,000 you took out. Rebuilding your emergency fund after draining it can seem like a challenge, but it is possible with some discipline. You can follow the 6 steps listed below to rebuild that ever so important emergency fund.

This may seem like a "no duh" point, but it is important to note for one reason. One of the reasons that you may have had to drain your emergency fund is that you lost your job and had to use your emergency fund to pay for your bills.

The obvious priority in this situation is to get another job so you have income to use to rebuild your emergency fund. Some income is better than none so do whatever you can to start bringing income in so you don't have to use your entire emergency fund or worse go into debt by putting your expenses on a credit card.

Consider picking up a job at a restaurant or look into a side hustle like Doordash or Uber to start bringing in money as fast as possible as you look for another job. This will at the very least slow the bleeding and make it easier to rebuild your emergency fund after you use it.

Yes, you will have to make some sacrifices as you rebuild your emergency fund. It is not going to be fun, but at this point it is necessary. Review your budget and look for areas in which you could cut spending. You want to first look at areas that are not neccessities for you to live.

For example, maybe you are used to going out to eat at a restaraunt a few times a week. You may be able to save a few hundred dollars a month by making your meals at home as opposed to going out. Maybe you also have multiple streaming subscriptions to Netflix, Amazon, Hulu, Max and others.

Could you get by temporarily with only one or two of those? Are you spending lots of money on events such as concerts or sporting tickets? Try to find discounts for these events or try to find things that you can do for free that you still enjoy.

You can also look at to save money with your necessities. You may be overpaying for things like car and home insurance. It can be worthwhile to shop around for better rates. This can potentially save you hundreds of dollars that you can then redirect to your emergency fund.

The point here is that you can likely find extra money in your budget to send to your emergency fund by cutting expenses. It will not be fun, but it will reduce your financial stress once you have that emergency fund built back up.  

The more money you bring in, the more you can send to your emergency fund, and the faster it will be rebuilt. You can either increase income from your current job if possible or look to generate income on the side by picking up a second job or by doing a side hustle.

For example, if you have a job in which you are compensated hourly, you may ask your employer for additional hours. Even an extra hour a day can make a big difference to your paycheck. You may also have a job in which you generate commissions.

You can consider working more at this job to look to set more sales appointments and close more sales. If you are not able to increase your income from your current job, you can look to get a second job. Maybe you bartend on the weekends.

You can look to do a side hustle like Doordash or Uber eats at night or on the weekends. Again, this does not sound like fun. Who wants to work more on the weekend? Those days are for you right? This is only temporary. You may be able to rebuild your emergency fund in a matter of a few months which will allow you to ditch the extra work.

If you are currently saving or investing for other financial goals, you could temporarily pause those contributions and use that money to rebuild your emergency fund. For example, say you are contributing $1,000 per month between a Roth IRA and your 401k to save for your retirement.

You could pause those contributions and put that $1,000 towards your emergency fund. Maybe you are saving $500 per month for a downpayment on a home. Again, you could redirect that money to your emergency fund.

To be perfectly clear, you should only do this temporarily. Saving and building wealth for your future is just as important as having an emergency fund. However, if pausing your investments contributions temporarily will allow you to rebuild your emergency fund, it can be a viable short term solution.

You likely own things that you do not use. Maybe you thought you were going to get into mountain biking, so you bought a bike, but it just sits in your garage. You may have furniture that never gets any use. You may have old electronics that you never use.

Look around to see what you could sell. Facebook Marketplace and Craigslist will be your best friend here. Even if you only make several hundred dollars from doing this, it can be a good way to make extra money to send towards your emergency fund.

To be clear, you do not have to do every single step listed above. The point is to give you ideas to help you rebuild your emergency fund. You may be in a situation in which you can only do a few of the items listed above.

For example, say that you have kids and are not able to pick up extra work or a side hustle as you need that time to take care of your children. However, you are able to cut some expenses in your budget, temporarily pause your investing goals, and sell some of your unused stuff.

Say that you had a $24,000 emergency fund built up and had to use $6,000 of that emergency fund to cover an unexpected emergency fund. You know that you need to rebuild your emergency fund to full strength. You are able to cut $500 of expenses from your budget.

You also temporarily pause your investing and savings goals which gives you another $1,000 per month. Finally, you are able to find $1,000 worth of stuff you can sell. Selling $1,000 worth of stuff will get you down to $5,000 needed in your emergency fund.

The additional $1,500 you found each month will mean that your emergency fund will be rebuilt in a little over 3 months. After your emergency fund is rebuilt, things can go back to normal. You can continue saving and investing, and afford to pay for the expenses that you temporarily cut.

The bottom line is that an emergency fund is an important part of a well rounded financial plan. If you had to drain part or all of your emergency fund, it is important to rebuild it. This can be accomplished by cutting expenses, working more, pausing investing or savings goals, and selling stuff.

In the short term, rebuilding an emergency fund is not always fun as you have to make some sacrifices. However, once your emergency fund is rebuilt you can continue to live life as normal knowing that you have a financial safety net.