What do you do when your emergency fund runs out?

Written by 11:23 am Money & Lifestyle

What to do when your emergency fund runs out

About 7 minutes to read

Over the last year or so, we’ve discussed the importance of an emergency fund extensively. They’re not just a financial safety net, there for rainy days when the roof starts leaking or the car needs replacing. 

An emergency fund is a matter of financial freedom. They put you in control of your financial future – allowing you to quit that toxic job, leave that bad relationship, take bigger risks in your career and your lifestyle. You can ask yourself ‘how much should I save’ or ‘where should I save my emergency fund’ – but they’re more than just money in the bank. They ensure you have flexibility and confidence even in turbulent or unprecedented times.  

But what happens when you hit those unprecedented times?

If you end up needing to fall back on your savings because you’re sick or out of work or there’s a pandemic that upends everything you ever took for granted?

What do you do when you realise your nest egg, that rainy day fund, is running out of juice, fast? 

Well, that’s exactly what we’re going to explore today. After all, whilst having an emergency fund is one of the smartest moves you can make with your money, they’re also not designed to last forever. It’s not a pension pot saved over a forty-year career and spent over thirty five. It’s meant to be a three-to-six-month buffer, maybe a year if you’re frugal. 

It’s a situation none of us wants to be in, but after the last year, it’s only natural that many of us are asking these questions. In fact, over a third of us (37%) are now more financially conscious than we were pre-pandemic and want to build their financial safety nets. We can’t guarantee the future, that our jobs have true security, or that we won’t face another wave of lockdowns. Even if we saved over the last eighteen months, we’re still conscious of how financially vulnerable we can become, and how fast. 

So, to feel prepared, if nothing else, here are some strategies to help you when your emergency fund runs out. 


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Step one: Regularly evaluate your budget 

Your emergency fund should already be based on what you see as at least three to six months of expenses with a little bit extra for fun and treats. You may have saved more (say a year) but the point is it should be based on tangible numbers: ie. how much money do you need to live comfortably for a certain amount of time? 

“Generally speaking, it’s good practice to have enough saved to cover around six months of expenses – this includes your mortgage or rental payments, bills, and groceries, perhaps even some budget for going out and socialising,” explains Edgar de Picciotto, co-founder of ikigai. “After that, you don’t want to hold too much excess cash but might prefer to start a separate savings account, perhaps one with better interest but less flexibility, or to contribute to a pension or investment pot. This way your money can grow, rather than be eaten away by inflation.”

However, it can be useful to set up regular points to evaluate your budget, especially if you’re living off your emergency fund. It can help to set flags for yourself – such as when you’re a quarter or a third of the way into your savings. 

 At each point, ask yourself: Are you staying on budget? Can you cut back on things like excess subscriptions or buy less expensive groceries? 

By frequently reviewing your budget and making small changes to live more frugally, you can hopefully stay ahead of your finances and keep your emergency fund going for longer. 

Step two: Pause investment contributions or negotiate your bills

Look, we’re passionate about helping you do more with your money but if times are really tough and you’ve eaten through most of your emergency savings, then it could be time to lower or pause your investment and pension contributions. This can free up some monthly budget and help your finances go further on a day-to-day basis. 

Another question on your mind may be whether to dip into your investment pot or another savings account – say if you’ve been saving for a house or a bigger purchase or just investing with a view to grow your money. Before withdrawing, you will want to consider if there are any fees or penalties for withdrawing, as some accounts may charge you for taking money out early. This can be particularly harsh if you’re signed up to things like a Lifetime ISA or a fixed-rate savings account, so always check the terms and conditions. 

Finally, there’s often a worry about whether or not you should negotiate on current bills and payments such as any credit you need to pay, your mortgage and so on. During the pandemic, it was made easier than ever to ask for a mortgage, rental or lending holiday – but the option does come with mixed reviews. This is because taking a holiday now may mean bigger, less manageable payments later. For this reason, if you’re running out of savings and aren’t sure when you’ll be back on the ladder, negotiating your bills or loans should often be as a last resort rather than a first step. 

Step three: Talk to your friends and family

Talking about money is incredibly powerful. It’s another step on that financial freedom journey. But talking to family and friends about your money when you’re struggling can feel very hard and emotional. You don’t necessarily want them to think you’re asking to borrow money or to feel like they need to spot you on nights out or to worry about including you in things that might be outside of your budget. 

However, letting key people in your life know what you’re going through can help you feel more in control and like you’re not going through the dark times on your own. It can also mean that you’re more comfortable making adjustments to plans – for example, planning a picnic in the park instead of a dinner out, or going to free exhibits over brunches and lunches. It can be awkward at first, but it can be transformational and bring you closer to those you care about too. 

Step four: Speak to a free financial advisor

Of course, if you don’t feel comfortable going into detail or getting support from friends or family, then you should know that there’s lots of free advice and debt support out there. Charities like StepChange and the Money Advice Service offer some amazing resources so that you can find the help you need. This includes speaking to specialist money and debt advisors who can talk you through the different options for loans, bill and credit negotiation, and managing financial stress. Mental health charities like Mind and Calm also offer support if your money situation feels overwhelming or impossible to manage. 

If you’re struggling and would like to read more on money and mental health, then you can also read our articles on how to approach overwhelming financial goals and what to do when your money is impacting your mental wellbeing

Step four: Consider a side hustle 

It’s been a while since we discussed side hustles but if your emergency fund is running out then it might be time to consider whether you have any skills or abilities that would allow you to earn money on the side. This could include monetising a skill you usually apply at work, like writing, editing, researching and so on. You could sign up as an online teaching assistant or sign up to an app like Fivr to do odd jobs. Or you could consider renting out a spare room or car parking space in a busy city, or signing up as a delivery or Uber driver. 

But a side hustle is not a silver bullet. As Emma Gannon, author of the Multi-Hyphen Method explained on starting a side hustle, “It’s ok to expect financial reward from it, but try to set a realistic goal around what sort of money your side hustle would ideally bring in … Do you just want to see where it all goes and bring in a little extra cash along the way? One recent stat showed that 46 per cent of Brits who had a side hustle were finding they could earn up to £500 a month on average from it. If you think you could begin bringing in real money, get yourself an accountant and make a proper savings plan.”

The whole point of a side hustle in this instance is simply to do what you have to do to make ends meet. In some cases, it might not be a dream job or something you hugely want to do. But it could also lead to something that makes you deeply happy or passionate about – especially if it allows you to put a creative skill to use in a way that it might not in a traditional nine-to-five.  

You may also like to consider our article on how to take care of your career and your money if you’ve lost your job as well. 

Step five: Downsize or sell assets 

Last but not least, the surest way to save money is to cut back on your biggest outgoings. If you’re renting, this might mean moving to a cheaper flat or into a place with more roommates. If you own your home, it might mean considering whether you can sell and downsize, take on a lodger, or move out to a cheaper place whilst renting out your home. None of these may feel ideal, but sometimes dramatically cutting costs is a must. 

Another alternative might be to sell some of your unwanted stuff. This could involve selling old clothes or books via sites like eBay, or more pricey valuables like jewellery or certain pieces of furniture or any collectibles. You could even turn this into a side hustle.

In many instances, downsizing or selling assets is very much a final option. However, it can be worth considering these moves early on when you first know you’ll be dipping into your emergency fund. Even it just means inventorying or making a plan for when this might be necessary, it’s good to stay ahead rather than have to move or sell under pressure. 

There’s nothing scarier than feeling like you’re running out of money. 

Everything discussed here is designed to help you maintain a sense of control and support even when the situation seems dire. As we know, money can be emotional – especially when you’re low on funds and down a security net. But you don’t want to make decisions out of panic. 

Instead, try to take a step back, speak to those around you or to experts and advisors, remember there is support out there and plenty of ways to get yourself back on track. 
And when you are, you’ll be able to start building up that emergency fund again too – taking yourself one step closer again to financial freedom and wellbeing.


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We built ikigai specifically for those who want to bring their lifestyle to the next level, by taking better care of their finances.

ikigai beautifully combines wealth management and everyday banking in one single app. And by doing so, it creates a whole new world of opportunities.

Visit https://ikigai.money to find out more.

Maurizio & Edgar, Co-Founders, ikigai

When investing, your capital is at risk.

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Tags: Last modified: 18 June 2021
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