9 ways to build an emergency fund when you’re living week to week

Having an emergency fund is one of the money essentials every single person should have.

It’s a pot of money set aside for when you desperately need cash in a hurry: perhaps you’re between jobs; fleeing an abusive relationship; a natural disaster destroys your home; or you’re diagnosed with cancer or a chronic illness, with medical bills piling up just as you’re unable to work.

How much you set aside is up to you, but I generally suggest aiming for three to six months’ worth of living expenses. Hopefully, you never need to use it – meaning extra savings for later in life. But if you do, your future self will be incredibly grateful it’s there.

With that in mind, here are some pointers to get your emergency fund up and running:

1. Automate it

It can be difficult to part with your money, especially when living on a shoestring budget. This is where automating the process really helps. Create an automatic transfer each pay cycle, transferring a set amount from your normal account into your savings (emergency fund) account. That way, you won’t forget to do it or be tempted to spend that money.

2. Start small

The emphasis here is on building your emergency fund – don’t pressure yourself into thinking you need to find it all at once. Even $1 a week adds up over time. You can always add more later if you get a pay rise or a better-paying job.

3. Make your money work hard

The more your money grows by itself, the less you have to put into it. Stashing $1 a week under your mattress would give you $52 after a year (not to mention a lumpy mattress). But in a high-interest savings account, with interest currently about 4 per cent, that same $1 a week could be worth $54.12.

You can take a bigger risk for a potentially bigger reward, but this is an emergency fund so low risk and avoiding it going up and down is key. But you can certainly invest excess cash: yearly investment returns in Australia average about 8 per cent, which would see that amount grow to $56.16 after the first year. Over time, the difference grows even faster thanks to compound interest, but remember at times it can go down.

4. Use your tax return

Tax refunds are like forced savings – taken out progressively over the year and then repaid as a lump sum. Given you weren’t using this money anyway, it is a great source of cash to put into your emergency fund.

The same goes with any other unexpected windfalls: refunds, winnings, birthday money, those coins you found wedged in the sofa…

5. Embrace cashback apps

Many retailers partner with cashback apps that reward you for registering with them by returning some of the money you spend online.

Register with a reputable cashback app (e.g. Cashrewards, ShopBack) or your bank’s own (e.g. Commbank’s Yello, NAB’s Goodies) when shopping online. Then nominate to have this money paid straight into your emergency fund, instead of your everyday account.

6. Spend points, save cash

Are you one of the millions of Aussies with a share of $1.4 billion of unused money on gift cards? Perhaps you have unused loyalty points at the supermarket, on Flybuys, your credit card or elsewhere?

Points and gift cards allow you to effectively spend someone else’s money on your essentials, freeing up your own money to save into your emergency fund.

7. Declutter

A good spring clean can help you find things you no longer use that could be sold. Online marketplaces let you sell items for free. If you have lots to sell, consider holding a garage sale or getting a spot at a local car boot sale.

It’s a win-win: your home is cleaner and less cluttered, and your emergency fund gets a welcome top-up.

8. Review your spending

At least once a year, review your spending and try to get better value from existing providers or switch to a new one with a better deal.

This goes for:

• Your mortgage
• Any other loans
• Energy
• Phone and internet
• Insurances
• Subscriptions.

Regular spending reviews help you identify anything you don’t use, which can be cancelled, and get better value for money on the things you can’t do without. Then – you guessed it – bank those savings into your emergency fund.

9. Be kind to yourself

Living week to week is tough and sometimes there is more money than others. If it’s an especially tight week, cut yourself some slack if you can’t afford to put anything away. In better weeks, try to put a bit extra into your emergency fund instead.

Remember, this is money set aside for an emergency, so resist the temptation to spend it. Otherwise, you’ll need to start building your emergency fund all over again!