5 Essential Steps to Take When Your Emergency Fund Runs Out

A 2024 survey from Empower reports that nearly 37% of Americans aren’t prepared to handle a $400 emergency expense. In fact, it claims that over 1 in 5 Americans have no emergency savings. This isn’t particularly shocking, as in 2023, the Federal Reserve Board, in a report on the economic well-being of U.S. households, considered adults who had 3 months’ emergency savings, and this amounted to just 54%.

When financial experts recommend keeping three to six months of essential expenses safely tucked away, running out of that safety net sometimes will feel like a huge financial failure. But the reality, stark as it is, is that emergency funds are meant to be used during emergencies. So the real test isn’t whether you’ve depleted your fund but how strategically you respond when those resources are gone.

Your emergency fund can evaporate due to medical bills, job loss, income reduction, or a series of unfortunate events, and if you want to deal with this, you’ll need to plan thoughtfully. The following five steps will help you navigate such a challenging financial period.

Key Takeaways

• According to the Consumer Financial Protection Bureau’s Making Ends Meet survey in 2022, nearly a quarter of consumers (24%) have no savings set aside for emergencies, while 39% have less than a month of income saved for emergencies.
• Treat your emergency fund as a last-resort safety net by using it only for true emergencies not for non-urgent expenses like vacations or lifestyle upgrades.
• When rebuilding your depleted emergency fund, make saving an automatic part of your budget.
• Consider a temporary lifestyle adjustment by cutting non-essential expenses, finding additional income sources through side hustles, and selling unused items to accelerate your emergency fund replenishment.

Implement an Emergency Budget Overhaul

“Rebuilding requires intentional budgeting” said Netta Stahl. The Tel Aviv based financial coach says “sticking with old spending patterns while trying to replenish the fund will only slow progress.” The big question now is “how do you implement an emergency budget overhaul?”

Create an entirely new emergency budget that reflects your current financial reality. It’s best to not see this just as an attempt to trim expenses but to see it as restructuring your spending priorities.

• Review every recurring expense and eliminate anything non-essential.
• Reallocate funds toward immediate needs.
• Consider implementing creative cost-cutting measures like “themed” budget days (such as “ramen Tuesdays” or “no-spend weekends”).

 Proactively Contact Your Creditors

Don’t wait until you miss payments to reach out to lenders and service providers. Contact them immediately when you anticipate potential payment difficulties. Many creditors offer hardship programs that can temporarily lower interest rates, waive fees, and adjust payment terms. These programs typically last a few months and allow more of your payment to go toward principal. This way, you can make meaningful progress on your debt while managing cash flow during your emergency fund rebuild phase. Stahl advises, “Never take the first offer just because you’re stressed. Desperation can lead to expensive mistakes, so explore a few options before locking yourself into high-interest debt.”

Strategically Pause Other Financial Goals

Temporarily redirecting funds from other financial objectives can help you rebuild your emergency fund faster:

• Calculate the minimum contributions needed to maintain employer matches on retirement accounts.
• Evaluate the long-term cost of pausing investments versus the immediate need for cash reserves.
• Consider reallocating funds from long-term savings goals (e.g., vacation or home down payment) to your emergency fund.
• Explore options to temporarily reduce or suspend payments on student loans or other non-essential debts.
• Set clear milestones for when you’ll resume normal contributions to avoid indefinitely neglecting important financial goals.
• Use this pause as an opportunity to reassess and potentially reprioritize your long-term financial objectives.

You have to consciously be aware that this isn’t about abandoning long-term goals but prioritizing immediate financial security. “Remind yourself that this is temporary. It’s a season, not a permanent lifestyle,” Stahl notes.

Secure a Part-Time Freelance Gig

You can increase your income using freelance work if your emergency funds run out. Leverage platforms like Upwork, LinkedIn, Fiverr, or industry-specific job boards to find opportunities in your field. Some skills are popular in the freelance gig space: content writing ,virtual assistance, graphics designing, etc. You can try learning these skills or leveraging them for freelance work. You can also offer specialized consulting in your professional field. Consider creating and selling digital products (e.g., online courses, eBooks) that can generate passive income over time. Network within professional associations or alumni groups to find higher-paying, specialized freelance work. Invest in enhancing your skills through free online courses to increase your earning potential. Track all freelance income and expenses meticulously for tax purposes and to gauge the effectiveness of your efforts.  The flexibility of freelance work allows you to scale hours based on your needs.

Transform Unused Assets Into Emergency Capital

This is perhaps the most innovative of the steps, going well beyond the typical “sell your stuff” advice. Look beyond the traditional selling of household items by conducting a comprehensive “asset audit” of your life. This includes evaluating physical possessions, digital assets, unused subscriptions, reward points, cashback opportunities, and even specialized knowledge you could monetize. For physical items, consider not just selling but also renting valuable possessions through platforms like Fat Llama or Turo. Digital assets like unused domain names, photos, or creative works might find buyers on specialized marketplaces. Check out peer-to-peer rental platforms for high-value items like cameras, musical instruments, or sports equipment. You can even consider selling or licensing intellectual property, such as patents or copyrights you may hold.

Stahl cautions against trying to “invest” your way back: “Some people feel pressure to replace the fund fast and take unnecessary risks like putting their emergency savings into stocks or crypto.” That defeats the purpose of an emergency fund. This money isn’t meant to grow, it’s meant to be there when you need it.

Bottom Line

Remember, rebuilding your emergency fund is a process. Stahl estimates that it takes “just over one year to fully replenish a 6-month emergency fund” for most people. Stay focused, adjust your lifestyle temporarily, and prioritize your financial security. Also, remember that a depleted emergency fund is not a failure. In fact, it’s proof that your system worked. Now, it’s time to get back on track.