7 Practical Tips for Building (or Rebuilding) Your Emergency Fund

Take these steps to squirrel away money for a rainy day

David Hochman,

AARP

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Published January 21, 2026

a red tool box with drawers pulled out. the drawers are lined with large one hundred dollar bills

Matt Chase

You can’t predict the next flat tire or plumbing disaster, but you can certainly prepare for it. When that rainy day moment arrives, an emergency fund is the difference between an “uh-oh” and an “I’ve got this.”

Nearly half of Americans don’t have enough savings to cover three months of expenses in an emergency, according to the latest National Financial Capability Study by the Financial Industry Regulatory Authority Investor Education Foundation, the education arm of a nonprofit oversight body for financial companies.

Food costs, in particular, have squeezed budgets so hard that two-thirds of Americans have been forced to cut back elsewhere to keep up. If you’re retired or nearing retirement, your emergency fund is an essential safety net, not a luxury. Yet Gen Xers have median emergency savings of only $500, a 2025 survey by financial services company Empower found.

“Your emergency fund is less about that broken water heater than about peace of mind,” says Marc Russell, a financial coach in Atlanta and founder of BetterWallet, a company that teaches underserved communities how to invest and build wealth. “Having that backup money is increasingly important. The older you get, the more your priorities shift from growth to security.”

Many financial planners recommend that working adults save enough to cover at least three to six months of essential living expenses, such as housing, utilities, food and insurance. Retirees may need a larger emergency fund since they don’t have a paycheck to fall back on.

To identify your emergency fund goal, start by reviewing your past 12 months of bank and credit card statements to determine how much you’re spending on essentials. Add up the costs and divide by 12 to calculate your average monthly living expenses, then multiply that number by three or six. You could also use an emergency fund calculator from financial resources like NerdWallet, the USAA Educational Foundation or Navy Federal Credit Union.

If your rainy day fund isn’t where it needs to be, you can take small steps to steadily build it. Here’s what financial advisers recommend.

1. Automate your saving — then personalize it

Consider setting up an automatic transfer from your primary bank account to a designated emergency fund account the day after your paycheck arrives, if you’re still working, or after your monthly Social Security benefit hits your bank account, if you’re retired. Select a small amount, such as $20 or $30. You’ll hardly notice the change.

You’re less likely to stash money away for emergencies “if you rely on willpower,” says Jason Fannon, a senior partner at Cornerstone Financial Services in Southfield, Michigan. “Automation lets the money move before you can talk yourself out of it.”

He suggests giving the account a customized name, such as “Pat’s Emergency Fund” or “Pat’s Rainy Day Reserve.” “When you label it that way, it feels real,” he says.

2. Move your money where it can grow

A 2025 Bankrate survey found that Americans tend to keep their savings in the same bank account for an average of 17 years, often because of sheer habit. But it takes little effort to move money from a traditional savings account to a high-yield account that significantly increases your interest.

“You want liquidity that’s actually earning money,” says Emily Guy Birken, a financial coach and author of The 5 Years Before You Retire. Some high-yield savings accounts pay as much as 4.2 percent interest, compared with an average of 0.39 percent for traditional savings accounts.

Some brick-and-mortar banks offer competitive high-yield savings accounts, but the best rates often come from online banks, which don’t have the overhead costs that physical banks do.

“As long as they’re legitimate, FDIC-insured institutions, online banks are just as safe as traditional ones,” Birken says.

3. Lower your insurance costs

Nearly half of the homeowners in J.D. Power’s 2025 U.S. Home Insurance Study reported premium increases in the past year. Other surveys show older drivers are more likely to face rate hikes than younger drivers because of their perceived risk.

“You don’t have to just accept those quiet upticks,” says Fannon. Shopping around for a new provider can save you hundreds. Car owners who switched insurers in the previous five years saved a median of $461 in annual costs, a 2024 Consumer Reports survey found.

4. Cut unused subscriptions

You don’t have to forgo eating out or giving birthday gifts to grandkids to fill your emergency bucket. Focus on cutting out the unnecessary expenses that are stealthily draining your bank account, such as subscriptions and memberships you’re no longer using.

According to a 2025 CNET survey, the average U.S. adult spends almost $200 a year on unused subscriptions.

Don’t make that mistake. Audit your last three months of credit card and bank statements to identify all of your recurring subscriptions, then cancel the streaming services or memberships that aren’t worth keeping.

Even $30 a month recovered from forgotten charges adds up to $360 a year — enough to cover a small auto or home repair.

5. Plan ahead with ‘sinking funds’

By the time you reach your 50s and 60s, you know where emergency funds tend to go: medical expenses, car repairs, fixes around the house, kids in need. “Certain expenses come around like clockwork, so it’s nice to be prepared for them specifically,” Russell says.

That’s where “sinking funds” come in. You steadily allocate (or “sink”) money into small, dedicated buckets for certain expenses before they arise. Many banks let you do this online, enabling you to contribute $10 or $25 a week to individual funds that you’ve earmarked for home repairs, unforeseen medical expenses and other surprise costs, all under the umbrella of your main emergency fund.

6. Turn clutter into cash

Selling things you don’t need or want won’t fill every budget gap, but it can give your emergency fund a healthy jump start. “People underestimate how much value is sitting in their garages and attics,” says Birken.

Start with the easy stuff — duplicate kitchen gadgets, worn-out tools and clothes you no longer wear. You can post them for sale on local marketplaces like Facebook, OfferUp or Nextdoor, or take them to a consignment shop. If you have a lot of things to unload, an old-fashioned yard sale can help you raise some cash while getting to know your neighbors better.

“Sell before you feel desperate,” Birken advises. “When you’re calm, you make better decisions and get better prices.” Each sale, no matter how small, is cash you can put into your emergency fund.

7. Redirect ‘phantom’ expenses

When you finally pay off a mortgage, auto loan or credit card balance, that monthly payment disappears — but many people let the money quietly slip back into everyday spending. It’s what Fannon calls “phantom expense creep.”

Instead, treat each paid-off debt like a built-in raise that can help you save for a rainy day. Redirecting that $400 monthly car payment you’re no longer making, for example, can help you reach your emergency savings goal.

“The beauty of phantom money is that you’ve already proven you can live without it,” Fannon says. “You’re just giving those dollars a new job.”

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David Hochman is a longtime contributing editor for AARP The Magazine and AARP Bulletin. His bylines appear in The New York Times, Forbes, GQ, Food & Wine and many other publications.