How to Win the Battle and Build Your Emergency Fund

By Justin Stivers

Financial stability is a goal we’re all working to achieve and maintain, especially in recent years. While economic insecurity is not a new problem, the issue has only been exacerbated in this post-pandemic era. Between 2014 and 2016, one in three households with children could not pay for adequate housing, food, or utilities according to data from the Center on Budget and Policy Priorities. However, lower-income Americans weren’t the only ones struggling to provide for their families. According to the same report, approximately one in three middle-class families experienced some sort of economic hardship during that time.

Fast forward to post-pandemic days and things have arguably gotten worse. A 2024 Bankrate survey found that more than half of Americans are uncomfortable with their level of emergency savings. What’s worse, more than one in three Americans say they have more credit card debt than emergency savings; more than half say they’d be unable to afford an emergency cost totaling $1,000. One in four say they have no savings at all. So, what’s impacting Americans’ savings rate and what can be done to reverse the trend?

COVID-19 virtually shut down so many facets of our economy. People were no longer spending money on travel, entertainment or even dining out. This loss of discretionary spending coupled with stimulus checks from the federal government led many Americans to have an excess of savings. In August, 2021, the Minneapolis Fed reports Americans’ savings peaked at $2.1 trillion, which boils down to more than $8,000 per U.S. adult. However, those savings started to deplete once the economy reopened. Since 2022, Americans have been saving less than 5% of their disposable income.

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It’s no secret inflation has impacted how much Americans have been able to save. A 2023 Bankrate survey found less than one-third of workers say their pay has matched or exceeded inflation. Seventy-two percent say their incomes haven’t kept up with their cost of living. While inflation has been a real concern over the past few years, the annual rate has dropped significantly. In June 2022, the inflation rate peaked at 9.1%. Since then, it has dropped to 3.3%, according to a report from NerdWallet. However, the cost of living has not.

Since 1970, a report from Consumer Affairs found the average Consumer Price Index (CPI) increased from 38.8 to 172.2. Between 2022 and 1970, the national CPI has risen by more than 500% while wages have only increased 80%. Additionally, housing costs and college tuition rates have increased, too. The same report found the median home price in 1970 was $24,800, or $185,600 when adjusted for 2022 inflation. In 2022, the median home price rose to $370,600.

College tuition rates are showing a similar trend. In 1970, annual tuition for a public institution was $400, or $2,800 when adjusted for 2022 inflation, compared to $10,600, or $11,400 when adjusted for inflation. As it turns out, many families don’t have that kind of money lying around, forcing many students to take out loans to pay for schooling which results in a heavy financial burden that can last for decades.

These factors have pushed many Americans’ wallets to the brink, making it extremely difficult to build emergency savings. However, spending habits could also be to blame. In a survey of nearly 2,000 American adults, Clever Real Estate says 71% reported having regrets about their spending and 74% admitted to having an overspending problem.

Advances in technology have also made it easier to make impulse purchases. With ads constantly popping up on social media feeds, the rise of online influencers and faster delivery times through sites like Amazon, the pressure and impulse to buy can be hard to ignore. According to the Clever Real Estate survey , 55% of respondents say they make purchases based on social media ads. Meanwhile, 20% say they’ve made purchases or taken vacations for the sole reason of posting about it on social media. So, what can Americans do to reverse this trend and take back control of their finances?

The first step to building emergency savings is figuring out how much you actually need to save. A good rule of thumb is to have at least three to six months' worth of savings in your emergency fund at all times. This money is to be used for emergency costs such as car and home repairs and maintenance, or the sudden loss of income. That amount may be higher if you’re self-employed or preparing for a major life change such as a move or a child.

Once you figure out how much you need to save, it’s important to build your budget around that amount. While you’re building your budget, find ways to cut spending. Cutting out unnecessary subscriptions, ordering take-out through food delivery services and cooking at home can help. Additionally, using budgeting apps or tools can help you track your spending and identify areas where you can make further cuts. These tools can provide a clear picture of your finances, making it easier to stick to your budget.

As for cutting down on impulse buying, particularly online, place items into your shopping cart and let them sit there for a while. You may realize you don’t need the item after all. Implementing a waiting period before making a purchase can help you avoid unnecessary spending. You can also set spending limits for yourself to ensure that you’re not overspending on non-essential items. This strategy can be particularly effective when combined with regular reviews of your bank statements and credit card bills to spot and curb impulsive purchases.

The next step is opening a separate savings account just for emergencies. A money market account, a separate account with your current bank or an online high-yield savings account is recommended. Note this could also be a good time to check on your retirement savings. Consider opening an IRA if you haven’t already. Keeping your emergency fund in a separate account helps reduce the temptation to dip into it for non-emergencies. Plus, choosing an account with a higher interest rate can help your savings grow over time.

After opening the account, consider setting up automatic transfers from your paycheck. This will allow the money to be taken out before you even see it. You’ll be surprised at how much your savings can grow over time. Automating your savings ensures consistency and makes the process effortless. Even small, regular contributions can accumulate significantly over time, helping you build a substantial emergency fund without having to think about it.

Identifying your financial goals can also help you save with intention. Write down short-term and long-term goals and make a plan for achieving them. There are also certain short-term and long-term investments you can make to help you along the way. For example, you might consider setting up a diversified portfolio that includes stocks, bonds and mutual funds. These investments can provide growth opportunities while still maintaining some level of liquidity in case of emergencies.

Building savings can be easier said than done, especially when certain factors like rising costs are out of your control. However, building and maintaining an emergency savings fund is crucial to your financial security and stability. Setting aside money that can be used to cover unexpected costs will not only help alleviate some of your stress, but it will also help you preserve your wealth and limit your debt. It also requires some discipline. Figuring out how much you need to save and creating a budget that supports that is a great way to start. Cutting unnecessary costs and identifying goals will help you save with purpose, moving you one step closer to financial stability.

Additionally, it’s important to review and adjust your emergency fund regularly. Life circumstances can change, such as a job loss, medical emergency or significant home repair, all of which may require you to tap into your savings. By regularly reassessing your financial situation and adjusting your savings goals accordingly, you can ensure that your emergency fund remains adequate to cover unexpected expenses.

Finally, consider seeking advice from a financial adviser. A professional can help you create a tailored savings plan that aligns with your unique financial situation and goals. They can also provide guidance on investment opportunities that can enhance your emergency fund. With expert advice, you can make informed decisions that will strengthen your financial security and help you achieve long-term stability.

About the author: Justin Stivers

Justin Stivers is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Stivers Wealth Management is a separate entity and not affiliated with CoreCap Advisors. The information provided here is not tax, investment or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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