How to Build a Mini Emergency Fund While on a Small Income

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Being financially prepared for when an emergency strikes is important. Life happens. Things break. The last thing you want to be doing is having to put an unexpected expense on a credit card with 20% interest.

Emergency funds are essential. They give you peace of mind when something pops up. They keep you from that crippling situation of feeling stuck and without options.

Now, there are two big things to know when it comes to emergency funds. They’re really hard to build and people often underestimate how much they need in one.

For the longest time, I couldn’t really master the concept of emergency funds. I understood the essential nature of them but couldn’t for the life of me figure out how to properly build one.

It seems pretty self-explanatory at first sight. You save money out of each paycheck, put it in your savings account and BOOM! A nice little cash fund you can use as your for rainy days (or more like raging storms).

Although I never felt successful in my efforts towards building and maintaining one. Back in college, I would routinely skim a little off the top whenever I was feeling a late night supermarket run. As I worked first post-grad job, I would use the account as a catch-all for vacations, emergencies, and any other savings goals. Whenever an actual emergency happened and I used the money from the fund, I would get unmotivated since my savings were set back.

It was a beautiful mess. Beautiful in the sense that my emergency fund account had an assortment of ~wonderful~ nicknames I changed whenever the mood struck (cash by senseless, dollars in vogue, etc). Mess in the sense that I didn’t have a consistent savings habit that helped my emergency fund stay strong, no matter how much I was making.

Let’s face it. When you’re in your twenties, building an emergency fund can be especially hard. You have to deal with several savings goals like student loan repayment, car payment, house downpayment, weddings (yours or attending friends) and the generally high cost of living that comes with living in a major city.

Saving the recommended 3-6 months of expenses is freaking hard. However, I’ve learned that having a small and growing emergency fund is better than no emergency fund. Given that I’ve had an emergency fund throughout several periods of my life (broke college student making minimum wage, recent grad making entry level, and working professional making $1200 a month) I’ve learned some things about how to build an emergency fund while on a small income.

Negotiate Your Bills

Auto insurance is such a pain. When I would look at my statement every six months, it would give me aches with how much I was paying. If I had paid attention to the latest television infomercial, I would have immediately canceled my plan and gone for one of those seemingly sketchy places that advertise for “low low low” auto insurance costs.

I like my auto insurance (USAA), so instead of choosing between a sketchy place or continuing to pay what I was paying, I called them up. I chatted with the customer service team about how I was thinking about leaving. After not too much time, I was able to get a lower rate! My record of not having any recent accidents or traffic violations probably helped, but it never hurts to call and ask.

There are four bills off the top of my head that you could negotiate: auto insurance, internet/cable bill, cell phone bill, and student loans.

Internet providers are infamous for raising your rates after a one-year period. Call up and ask about promotional offers. Check out lower cost cell phone providers like Cricket Wireless or Republic Wireless.

I pay $40 a month for my Cricket Wireless service, which uses AT&T’s network, for unlimited talk/text and 5GB of data.

If you have a lot of private student loans, consider the option of refinancing. Check out LendEDU for refinancing options.

Track Your Spending

You may think you’re “good with money” because you don’t do common money trappings like subscribing to cable or eating out a lot. Bar hopping isn’t your kind of thing and you’re loyal to your Keurig coffee maker, so buying lattes all the time isn’t even a thought.

Status level: responsible. Right?

Well, not completely. If you’re not tracking your spending, you can never get a full picture of your financial situation. Tracking your spending helps you uncover money leaks, unnecessary fees you may be paying, and areas to trim.

There are a few ways to do this.

Notebook

Mint

Personal Capital

A notebook is pretty self-explanatory. You write down your purchases and at the end of the month, tally it up. Mint is a free money management platform that lets you track your cash flow and expenses.

Personal Capital is a free money management platform, similar to Mint, but with a lot more features. Some describe it as “Mint on steroids”. With it, you’re able to not only track your income and spending but also your investment accounts and net worth. There is a financial planning tool within the service as well.

You can sign up for a free Personal Capital account. Seeing the visualizations of your cash flow and investments can really help you stay motivated towards your goals.

Once you start tracking your spending, you could see areas where $5 here or $10 there goes. It may seem small, but small progress is better than no progress.

Create a Separate Savings Account

Having your savings account parked right alongside your checking account at the same bank isn’t the option when building a mini emergency fund on a small income.

Several months ago I opened an online savings account with Ally Bank. My savings account earns an interest rate of 1.25% APY. This is 125x the interest rate that my old savings account was at a traditional brick and mortar big bank.

Ally Bank even has a calculator where you can see how much more money your savings account earns in interest being at Ally versus other traditional banks. You won’t get rich off of a 1.25% APY but it’s sure as heck a lot better than the 0.01% your savings account is probably earning right now.

Aside from the interest rate, having your savings account at a different bank keeps you from being tempted to dip into your savings during non-emergencies. When you can’t see the money constantly, you’re less tempted to spend it.

Look for Additional Income Streams

When you’re building an emergency fund while on a small income, there comes a point when you can’t cut back anymore. You have to grow the gap between your income and expenses by looking for ways to make extra money.

You could look into different side hustles and part-time jobs. Part-time jobs could include things like waiting tables, working at a grocery store, Amazon Flex, and other jobs where you have to be at a place at a set time and for a set number of hours.

A side hustle is different than a part-time job. Usually, it has some flexibility to it. There are short-tail side hustles and long-tail side hustles. Short-tail ones allow you to get up and running and start earning relatively quickly, these could include driving for a rideshare service like Lyft, babysitting, or doing deliveries.

Babysitting (Use Care.com and ask around in your area)

Dog walking/pet sitting (Rover, DogVacay)

Delivery (Postmates, DoorDash)

Rideshare driving (Lyft)

Waiting tables

Taking Surveys

Short tail side hustles are great for being able to help you build up an emergency fund quickly while on a small income. However, if you’re truly looking to expand your income streams, it’s worth looking into long-tail side hustles.

Blogging

Freelance Writing

Graphic Design

Web Design/Development

Virtual Assistant

Think beyond just what’s in front of you when you’re looking for ways to make extra money or grow your side hustle. The best book I found for getting into a problem-solving income potential mindset was Chris Guillebeau’s side hustle book about going from a side hustle idea to making money in 27 days.

What if instead of just driving for Lyft, you created a website centered around educating rideshare drivers on things and providing them with helpful information. Harry from The Rideshare Guy did just that.

Let’s say you do dog walking via Rover for a side hustle. What if you studied the best practices, learned what dog owners are seeking most, and improve your client list by implementing the things you learn. You could consider developing your own dog walking business.

Meal Plan

Meal planning is one of the best things you can do to cut down your food spending. A lot of people spend more than they need to when it comes to their monthly food budget.

Meal planning is often thought of as tedious and time-consuming. While it isn’t the simplest thing to do, it is far less complicated than people make it out to be. Sites like The Minimalist Baker and Budget Bytes provide a lot of healthy, simple, and budget-friendly meals you can try.

$5 Meal Plan is a meal planning service you can look into If you’re looking for simple, weekly meal plans. If you’re into writing stuff down, get a meal planning notepad to keep track of recipes.

Building up an emergency fund isn’t easy. It takes some creativity beyond just cutting your expenses. Getting to the recommended e-fund of 3-6 months expenses can take a while. Don’t focus too much on that set amount.

Focus on building a mini emergency fund of about one month’s expenses. It will give you peace of mind and keep you from going into panic mode whenever some unexpected expense comes up.

Additional Things to Try

Ebates: Use the cashback site Ebates for when you shop online. Ebates allows you to earn cash back when you shop through their portal at more than 1200 stores. When you sign up for Ebates, you’ll get $10 bonus after making your first purchase.

Ibotta: Use Ibotta to earn cash back on purchases you make in store. Get a $10 bonus when you sign up and make a purchase.

Utilize water more often: Pre-made and single-serve drinks can add up to so much money after a while. Not only that, but they’re usually loaded with a lot of sugar. Use the water from your sink and buy some low-cost drinker flavorings, ice tea mix, Crystal Light, or Kool Aid. 

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Colin // RebelwithaPlan

Colin Ashby is the writer behind Rebel with a Plan, a website dedicated to people who choose to rebel against the norm of living in debt and feeling financially unenlightened. He believes everyone has an eccentric quality to embrace and that lattes are sometimes a necessity (despite what the personal finance community tells you).

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