How to Grow a $1,000 Emergency Fund Into $5,000 in the Next Year

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Want to grow your savings five times over in the course of a year? Here’s how to get it done. [[{“value”:”

Since life has a way of throwing curveballs at us, it’s important to have emergency savings at all times. And even if you’ve managed to sock away $1,000 in a savings account, it unfortunately may not be enough to cover a large unplanned expense, like a home repair, or get you through a months-long period of unemployment.

Ideally, your emergency fund should have enough money to pay for at least three months of living expenses. But if you have $1,000 now, it may take a few years to get your savings to that point.

However, a $5,000 emergency fund buys you way more protection than $1,000 in savings. So if you want to grow your $1,000 into $5,000 in the next 12 months, here are three tips for how to do it.

1. Get some help from a high-yield savings account

With some savings accounts paying annual percentage yields (APYs) upward of 4.00%, you have a prime opportunity to get help growing your emergency fund. So if you’re earning much less interest than that on your money, it’s time to shop around for a new bank.

If you have $1,000 and are able to earn 4.00% APY on it for the next 12 months, that’s $40 toward your goal. It’s not a ton of money, but it’s something.

2. Cut spending to a reasonable degree

Eliminating every single fun expense from your budget is really no way to live. But if you’re able to cut back modestly, you can free up more cash for your emergency fund slowly but surely.

Allconnect reports that the average U.S. household spends $122 a month on cable and internet. But canceling the cable portion takes the median cost of internet service on its own down to $81 per month. That’s $41 in monthly savings, or $492 toward your emergency fund after 12 months.

This is just one example. The point, though, is that it pays to do a spending audit to see where your money is going. You may find that you’re able to free up a few small expenses that add to your savings nicely.

3. Boost your cash reserves with a side hustle

Interest earnings might add a small amount to your emergency fund. A reduction in spending might help even more. But a super-effective way to grow your savings is to boost your income with a side job.

Of course, you may want to try out a few different gigs to land on one that’s the right fit. But let’s say you decide to drive for a ride-hailing company. Uber says its drivers earn a median hourly wage of $33. If you’re able to earn $33 an hour doing that (or something else you enjoy more), and you want to grow your savings by $4,000 in 12 months, you’ll need to work about 121 hours. That’s only 10 hours per month. When you think about it that way, that goal seems more than doable.

A larger emergency fund could give you more financial protection when life goes awry — not to mention more peace of mind. And the sooner you commit to growing yours, the better you might feel about your personal finances.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.

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