We all need money on hand for financial emergencies, whether they relate to our homes, our cars, our jobs, or our health. Unfortunately, a large number of Americans are ill-equipped to handle an unplanned expense.

Earlier this year, the Federal Reserve Board conducted a survey and asked participants how they would pay for a hypothetical $400 emergency. A good 61% said they're prepared, and that they would either cover the expense with cash, money from savings, or a credit card whose bill they'd manage to pay off by the time it came due.

On the other hand, 27% of those surveyed said they'd need to borrow or sell something in order to come up with that amount of cash, while 12% said they'd have no way to cover that sort of expense at all. The takeaway? A whopping 39% of Americans aren't equipped to handle a $400 unplanned expense. Given that we're all supposed to have an emergency fund with enough money to cover three to six months' worth of essential living expenses, that's problematic.

Empty wallet being held open

Image source: Getty Images.

If you don't know how you'd tackle a $400 expense, consider it a wake-up call that your savings need some serious attention. And the sooner you make an effort to build some, the better.

Boosting your cash reserves

If you don't have money in the bank to cover an unplanned bill, you'll likely be forced into debt the next time an unexpected expense arises -- assuming, of course, that you even have the option to charge that bill on a credit card. If not, then you're really out of luck. That's why you must make an effort to amass some level of savings, and you can start by creating a budget, seeing where your money is going on a regular basis, and finding ways to cut back on spending so you can bank the difference.

To set up your budget, list your recurring monthly expenses, like rent, transportation, food, and utilities. Then, factor in once-a-year expenses, like your roadside assistance plan or warehouse club membership. Once that's done, compare your total spending to what you bring home income-wise, and see how the numbers stack up. If you have no savings at all, or less than $400 worth, then chances are, you're spending down your entire paycheck on an ongoing basis. And if that's the case, it needs to stop.

The good news? Once you have your budget, you can take a look at your various expenses and see which ones will be easiest to slash. For example, moving to a smaller apartment might lower your rent, but that would require you to really uproot your life. On the other hand, if you were to unload a car you can technically get by without, and also cut back on restaurant meals and leisure, you might save the amount you'd pocket by downsizing. Either way, you'll need to spend less in some expense categories if you want to start building savings.

At the same time, consider getting yourself a side gig on top of your regular job, and use your earnings from it to build your savings. You could sign up to work for a local business on weekends, or start your own venture -- especially if you have a hobby you're convinced you can monetize.

If you currently don't have the ability to cover an unplanned $400 expense, it's a sure sign that you need to do better in the savings department. The sooner you get on a budget, lower your spending, and start earning money from a side gig, the more options you'll have the next time a financial emergency strikes.