How to Build an Emergency Fund on a Low Income
Saving is hard when money is tight, but even a small emergency fund can keep a surprise bill from turning into debt. Here's how to set a realistic goal, find small amounts to save, use tax credits and programs that can help, and protect your savings once you have them.
By Pond.com editors Updated 2 min read
Quick answer
- Start with a small, realistic goal, such as $100, then $500, then $1,000.
- Saving even $5 or $10 each payday adds up and builds the habit.
- Tax refunds, especially from the Earned Income Tax Credit, can give your savings a big boost.
- Use a free savings account with no minimum balance, so fees don't eat your savings.
- Check whether you qualify for programs that lower your bills, freeing up money to save.
When every dollar already has a job, "save three to six months of expenses" can sound impossible. But you don't need months of savings to make a difference. A few hundred dollars set aside can cover a car repair or a late paycheck without a payday loan or a credit card balance.
This article is general information, not financial advice.
Set goals you can reach
- $100: covers a small repair, a prescription or an overdraft you'd otherwise pay a fee on.
- $500: covers many car repairs and urgent bills.
- $1,000: a solid starter emergency fund.
Celebrate each one. Reaching a goal you can see makes it easier to keep going.
Find small amounts to save
- Automate a small transfer on payday, even $5 or $10. Many banks and payroll systems can split your paycheck into savings automatically.
- Save leftovers: at the end of each week, move whatever's left in checking into savings.
- Round up purchases, if your bank offers it, to save the spare change.
- Save "found" money, like cash gifts, rebates or a lower bill.
Use tax time
If you qualify for the Earned Income Tax Credit or the Child Tax Credit, your refund may be one of the biggest amounts of money you get all year. Decide ahead of time how much will go to savings. Free tax preparation through the IRS's VITA program means none of it goes on preparation fees. See tax deductions and credits people often miss.
Lower your bills to free up money
- Internet: many providers offer low-income plans, often around $30 a month or less.
- Phone: check for prepaid plans, which are often much cheaper.
- Utilities: ask your utility about payment assistance and energy programs such as LIHEAP.
- Food: see whether you qualify for SNAP or WIC, and use local food banks if you need to.
Every dollar you don't spend on bills is one you can save. See how to lower your monthly bills.
Protect what you save
- Choose a free account with no monthly fees or minimums.
- Keep it separate from checking, so it isn't spent by accident.
- Avoid high-cost loans when something goes wrong; use your savings first, then rebuild.
Common questions
Start with whatever you can manage regularly, even $5 or $10 a payday. Your first goal might be $100, enough for a small repair or a prescription. Once that's in place, build toward $500 and then $1,000 before thinking about months of expenses.
Some programs, like SSI and some Medicaid categories, have asset limits, while others, like SNAP in many states, don't count savings or have generous limits. Check the rules for the programs you use, and ask about ABLE accounts if you have a disability.
Yes. Many online banks and credit unions offer savings accounts with no monthly fee and no minimum balance. Look for accounts with Bank On certification, which meet standards for low cost and no overdraft fees.