Feb 4, 2019

Building Emergency Savings When Living Paycheck to Paycheck

emergency savings

Unplanned expenses can derail even the most well-intentioned budgets. A broken furnace, car accident or emergency medical procedure can quickly put you behind on bills forcing you to use credit cards to pay for necessary living expenses like groceries. Your next paycheck only provides temporary relief since what results is a never-ending cycle of interest-only payments which keep you in debt. You feel like you’ll never be able to retire or pay for your child’s college education. The financial anxiety keeps you up at night. You’re not alone.

A recent CareerBuilder.com study found that over 75% of Americans are living paycheck to paycheck. So, how can you escape the stress caused by financial uncertainty? Establishing emergency savings when you live paycheck to paycheck is not only possible, but necessary. Apply the steps listed here to improve your financial situation and rest easier.

Set a Savings Goal

Financial experts recommend setting aside 3 - 6 months of living expenses in an emergency fund account. But, when you’re struggling to make ends meet, this idea can seem impossible, so break the goal down into more manageable chunks.

You can eventually build up to this amount but start small. Your first savings goal might be $500 or $1,000 added to your emergency savings account over the next 12 months.

Open a Dedicated Account

Once you have a savings goal, open an account for your emergency savings. Do not co-mingle other funds with this account. A separate share or savings account will help you see your savings progress and ensure the money is there when needed.

Pull Extra Money from Fixed Expenses

Cutting expenses should be part of your plan to stop living paycheck-to-paycheck. Eliminating unnecessary spending will free up cash each month and allow you to save. Variable expenses such as gasoline and utilities are necessary yet tough to reduce by more than a few dollars. But, did you know that your current budget might hold the key to funding your account quickly? Here are a few often overlooked sources of savings:

  • Student Loan Payments – If you have a high-interest rate student loan, then consider refinancing to lower the payment. While this may extend the life of the loan, it could free up $100’s a month depending on your outstanding student loan balance. If you have federal student loans, you might lose certain federal protections when you refinance using a private student loan, so carefully weigh your options.
  • Credit Card Payments - Cards with high or variable annual percentage rates (APRs) can be transferred to a lower fixed APR card if you have good credit.
  • Auto Loan Payments – Refinance your automobile loan if a lower rate is available.
  • Mortgage Payments – If you owe less than 80% of the value of your home, then it’s time to request removal of private mortgage insurance (PMI) from your mortgage.Call your lender to determine if you have PMI and for instructions on how to cancel it.

Automate Your Savings

Apply the cost savings to your emergency account. Set your checking account to automatically transfer the money saved each month from reducing expenses and deposit it into your dedicated emergency savings account.

For example:

Jill refinanced her student loan and completed a credit card balance transfer which resulted in reduced monthly payments.


Student Loan Payments: $300

Credit Card Payment: $200


Student Loan Payments: $200

Credit Card Payment: $100



Jill has her checking account set to automatically transfer $200 to her emergency fund account each month at the same time she normally makes her student loan and credit card payments. While you might still feel like you are living paycheck-to-paycheck for a while, you are actually redirecting your financial future. Remember, building your emergency fund is a short-term endeavor.

Found Money Has a Home

One of the quickest ways to build your emergency savings when living paycheck-to-paycheck is to add “found money” to your account. This money is not part of your regular income and may include money from your direct or indirect efforts. For instance:

There will come a time when you will need to withdraw funds from your emergency account. You’ll be able to do so with the confidence of knowing that the emergency is not causing you to go into further debt. Yes, you’ll need to replenish your fund, but now you know how to do so quickly. Building an emergency fund account is only the beginning. If you haven’t already done so, create a financial plan to help build a secure financial future for you and your family.