Raided Your Emergency Fund After a Layoff? Here’s How to Rebuild It

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It’s easy to blow through your savings when you don’t have a job. Here’s how to get back to where you started. [[{“value”:”

In 2023, 63% of Americans could not cover an unplanned $500 expense by tapping their savings, according to SecureSave. If you were laid off earlier this year and raided your emergency fund to get through that period of unemployment, that’s actually a good thing. It means you had savings and were able to use that money to avoid costly credit card debt.

But what if you’re now looking at a savings account balance that’s way lower than what you started with? Or, worse yet, what if you had to deplete your emergency fund completely because it took a while to find a new job?

Don’t beat yourself up. Your emergency fund served its purpose. Be thankful you had that money to tap in the first place.

At the same time, it’ll help to focus more on rebuilding your savings than bemoaning the money that’s missing. Here’s your game plan.

1. Set up small automatic contributions

If you’re working again, one of the first things you should do is set up an automatic transfer so some money lands in your savings account every time a paycheck from your new job hits. That amount can be smaller to begin with if necessary — say, $50 or $75. And there are steps you can take to build on those contributions, which we’ll get to in just a minute.

But this way, you’ll get the peace of mind that comes with knowing you’re rebuilding your savings every month to some degree. Also, it’s smart to automate savings when you’re getting a new paycheck.

If your check is normally $2,600 a month after taxes and deductions, you’re better off setting up a $75 automatic contribution to savings so you can get used to living on $2,525 instead.

2. Reduce your spending by a lot — but only for now

People are often told that a good way to build savings is to slash spending. Well yeah, sure, it’s easy to bank extra money each month when you’re spending nothing on takeout meals, entertainment, or leisure purchases — but who wants to live like that?

Severely limiting your spending isn’t an effective way to build savings over time. But if you’re specifically trying to replenish a recently raided emergency fund quickly, then cutting your spending to an extreme degree for just a few months is a different story.

Remind yourself that you’re not making permanent changes — you’re simply cutting back temporarily to bring your savings up to a more comfortable level. Mentally, that might work better for you.

3. Consider picking up a side hustle

A side hustle could be a great way to boost your income and free up more money to put into your savings. But if you’re new to your job, one thing you don’t want to do is take on a side gig that compromises your performance at your main job while you’re still getting up to speed.

You may want to focus on side gigs that only have you working weekends. This way, if your new boss asks for a random sit-down at the end of a workday, you won’t have to say no because you’re darting off for your evening shift waiting tables at a restaurant four blocks away.

You may also want to focus on side gigs that let you set your own hours, like driving for a ride-hailing company, so you can truly dedicate yourself to your new full-time role. Uber says its drivers earn a median income of $33 per hour. If you can fit in five hours of work weekly and you snag that same rate, that’s $165. After a year, that’s $8,580 of earnings (though remember, you’ll need to set aside a portion of that income for taxes).

Having emergency savings to tap during a layoff is crucial. But it’s hard to see that money disappear, even if it served its intended purpose.

If you’re now trying to rebuild your emergency fund, use these tips to speed up the process. Be kind to yourself and remember that having a lower savings balance isn’t a failure — it’s a result of circumstances beyond your control that would’ve been much worse had you not saved that money in the first place.

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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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