Help! I Had to Use My Emergency Fund. How Do I Rebuild?

Life can be unpredictable. Roofs leak, cars break down, medical bills pile up and you need to be able to pay for them. You need an emergency fund. And you have one; rather, you had one until you needed to dip into it to pay for one of those unexpected expenses. Thankfully, you were prepared by setting aside funds for this very type of crisis. But now what?

It’s time to rebuild your emergency fund so that when the next cataclysmic event happens (and it will), you will be able to respond.

Focus on the Positive

Using your emergency fund is, by definition, financially draining. But it can be emotionally draining as well. Paying for an unanticipated expense is very unfulfilling. Having to repair a dent in your car just to bring it back to its former glory does not add any value or satisfaction to your life. But you need to focus on the good news: You did not have to go into debt to repair the vehicle because you had the cash. That’s a major money accomplishment for many Americans. Take a moment to congratulate yourself. You avoided months of credit card debt, potential credit score damage and possibly having to postpone bigger dreams like owning a home or buying that new car you’ve had your eye on for a while. (You can see how your debts are currently affecting your credit scores for free on Credit.com.)

Accessing your emergency fund for emergencies is exactly why you established it so there is no need to feel badly about depleting it. But make certain that you always use it for a true emergency. A well-earned but unnecessary vacation, for example, is not an emergency.

Set a Goal for How Much You Need to ‘Re-Save’

Replenishing your reserves might take some time and sacrifice. First, determine how much you need to set aside. A good starting point is six to 12 months of living expenses. This offers plenty of cash for repairs, but also can provide short-term income if you were to become sick or hurt and unable to work. The best way to determine how you can refill the emergency bucket is to revisit your monthly budget.

Start Cutting Back

Eliminating daily delicacies will certainly help you rebuild your reserves. You might have cut back on your morning lattes or brown-bag it for lunch rather than eating out with your co-workers.

In my experience, the best way to really build the fund quickly is to consider reducing entertainment expenses. I have found that my clients are often surprised by how much they spend on entertainment when we take a deep dive into their expenses. You might have a contract for your cable TV and Internet services, but you may be able to drop premium channels without penalty. Weekly golf outings, trips to the nail salon, and a nightly glass of your favorite Cabernet can add up quickly. While these are fine when life is simple, they might be excessive when it’s necessary to buckle down.

If you are planning a vacation, you might consider postponing it until next year. Exploiting this large source of money might just be the answer to complete your funding. If that leaves you feeling too deprived, then you can still find some relaxation staying the weekend at a hotel in a nearby town.

Once you have reconstituted your emergency fund, you can go back to your normal living expenses and know that when tragedy strikes again, you will be prepared.