How to Build a Safety Net—Even If You Can Only Start With $500

Regardless of whether you earn a lot or a little, an emergency fund can make a big difference when it comes to your financial security.

A recent JPMorgan Chase & Co. study of more than six million households found that those with limited discretionary income—or a small amount of leftover income after paying off essential expenses—and a large emergency fund were more financially secure than those with a higher amount of discretionary income and a small emergency fund.

So what does this mean? Even if you have a high income, a lack of emergency savings can have a damaging impact on your finances. For instance, an unexpected expense could mean resorting to high-interest debt, like credit cards, to pay off your bills, potentially resulting in a spiral of debt.

Constance Craig-Mason, CEO of Concierge Financial Advisory, recommends thinking of an emergency fund as a peace-of-mind fund.

“Life happens. Cars break down, roofs leak, children get sick, and hours get cut. When those moments hit and you don’t have cash on hand, the stress compounds the crisis,” she said.

How Much Do You Need?

Your goal should be the equivalent of a few months’ living expenses. Some finance experts recommend up to six months. Add up all your must-pay monthly obligations and multiply the total by the number of months you decide to cover.

Six months may seem impossible if you’re working with a modest income, but you have some options and you can start small.

“Even $500 can change everything,” said Craig-Mason. “It’s enough to cover a small car repair, a medical co-pay, or a missed bill before it spirals into debt or collections.”

Finding Extra Money In Your Budget To Save

Start by taking a good, hard look at your monthly bills to figure out where you can save. Is there anything in there that can be trimmed down?

Think about the little things that you regularly part with money for. “Spending $1.50 less a day equals $548 saved in a year,” Craig-Mason said. “That’s just one less vending machine snack, coffee, or fast-food trip each day.”

You’re not limited to saving only what you can squeeze out of your paychecks. Seize that tax refund and tuck it away for an emergency—if not all of it, then at least some of it. And if you have the extra time, consider getting a side hustle to stash away some extra money.

This Account Can Help You Grow Your Emergency Savings

Your emergency fund should be placed in a separate account that you’ll only access in times of urgency.

“Keep your emergency fund somewhere safe, liquid, and separate from your checking account,” Craig-Mason says. “A high-yield savings account is ideal. This allows your money to grow without being at risk of market loss, while remaining accessible for true emergencies.”

Look into various banks’ interest rates offered on high-yield accounts. Compare them and go with the one that will earn you the most. Just make sure the account provides easy access to your money.

Plus, if you already have a checking account, consider setting up periodic automatic transfers from that account to your emergency savings account.

“When people live paycheck to paycheck, ‘saving’ sounds like a fantasy,” Craig-Mason said. “But the truth is, you don’t need a big windfall. You need small, consistent adjustments.”