It takes time, sacrifice, discipline, and hard work to build up an emergency fund, but it is possible. If you are unsure of the best way to save money for emergencies, we have that covered for you. The following are some tips to help you build an emergency fund so that you can survive financial challenges that can arise in your life.
1. Break Your Overall Goals Down Into Some Smaller Steps
There are some financial experts that recommend that you save 3 to 6 months of living expenses. That is definitely a good goal to have, but building up that large of an emergency fund can be very daunting, and could cause many people to give up before they even get started.
To build savings can take a very long time. That is why it is so important that you start out small and then build up your fund from there. Many people set a big and ambitious goal for their emergency funds from the very beginning but then discover later that it is going to take a lot longer than they first anticipated. They start to get discouraged along the way and then end up completely giving up eventually.
Therefore, it is very important that a low initial target is set – like $1,000 or $500, which can still be enough money to pay for a home or car repair – and then work your way up from there. If you save $40 from each paycheck, you will have saved $1,000 in 12 months. After you reach your goal, you then can set a new goal – perhaps $2,000 – and over time you will be able to build up a good-sized emergency fund.
As you are building your emergency fund, do not get discouraged and give yourself enough time. Even if you saved just $10 per week, in one year you will have saved more than $500, which when you have an emergency can make a major difference. The most important thing is to take action and get started with saving money, even if it is just a small amount, and stay consistent. You can’t build an emergency fund in a day, but over time you can achieve your savings goals.
Of course, there are always situations that may make you think that you need to dip into your savings. A cash advance can help, and leave your savings fund untouched.
2. Start a Separate Emergency Savings Account
After you have come up with your savings goal, you net step is to start a savings account. This account should be a separate account from your regular spending account. Do some comparison shopping and locate a financial institution that can provide you with a savings account with low or no fees and a good interest rate.
Do your research and due diligence on any charges and fees that might be incurred when you open an account with a specific financial institution. You will want to consider the amount of interest you earn, but that is not the main reason for the savings account.
When you have a separate savings account, it helps to build up a psychological wall in between money you should not touch and the money you can spend. If your emergency fund money is lumped together with your regular checking account funds, it will be more tempting to spend your savings since it will be easily accessible and you will see it on a regular basis.
Make sure to take precautionary measures when you open an emergency saving account so that your money is kept safe from yourself. One thing you can do is open a savings account at a different financial institution from where you conduct your regular banking. If you do open a savings account at your regular bank, be sure to not link the account with your bank card. Otherwise, you may be tempted to make ATM cash withdrawals.
3. Set Up Automated Deposits To Your Savings Account
Once you have a savings account that is specifically designated for emergencies, then your next step is automating deposits so they go into your savings account automatically and directly. Do you can do it via online banking or have your financial institution get it set up for you.
The easiest way that this step can be approached is to treat your emergency fund the way you would a bill. Get your emergency fund contributions incorporated into your regular budget and then make a payment once a month at least in the same way that you would do with your other bills. When you approach your savings fund the way you would a bill, you will be prioritizing where your money is going.
When you schedule automatic payments into your emergency funds, then you will not need to remember to transfer money into your fund, and it will prevent you from being tempted to spend the money on something else. You cannot spend the money if you don’t see it sitting inside your checking account.
Do your research and due diligence about HSA vs FSA account and on any charges and fees that might be incurred when you open an account with a specific financial institution.
The important thing is to make sure you allocate an amount to your fund that is realistic, affordable and lines up with the savings goal that you have made. Even small amounts of money will go a long way towards building up a small nest egg for yourself while getting the savings mindset instilled as well as the discipline that you need so you can achieve your goals. Paying yourself is what is key to being able to build up a solid emergency fund. If you get stuck in a financial corner then a payday loans alternative can help.
4. Send Extra Money To Your Savings Money
Once your savings plan has been put into place, you can then relax and watch your emergency fund continue to grow. However, it can also be very helpful to add to your fund with any extra money that comes your way – whether it is from a work bonus, rebates, cash gifts, or tax refund – to help you achieve your goal even faster.
When you get a bonus at work or your tax refund, rather than spending the extra money, this extra cash can be used to give your emergency savings account a boost. Use the money to increase your emergency fund, but just don’t completely rely on it for building your fund. Part of each windfall can be funneled into your savings account, and then you can use the rest of it to splurge a bit on yourself.
If you finish paying off a car loan or credit card, take the amount that you were paying on it and send it to your emergency fund. Your budget will not notice the small difference, while your emergency fund definitely will!
5. Search For Ways To Cut Expenses And Boost Your Income
Along with sending extra money to your savings fund, cutting back on your expenses and increasing your cash flow can really make a big difference. Storage lockers, garages, basements, and closets can be a real goldmine of things you don’t need any longer. Clear them out and place all of your unused and old items up for sale on eBay or Craigslist. You might be surprised by the number of people who will pay good money for your bridesmaid’s dress that you only wore one time or your old set of dumbbells.
Another good way to increase your income is to get a side hustle. If you like to write, consider freelancing a couple of blog posts or articles. If you are artistic, you can try to monetize your talents by selling your creations on Etsy. If you have a couple of free hours, sign up to be on paid focus groups, run errands, or fill out surveys for some extra cash.
If your time is limited and you can’t get a side business started, try to cut your expenses. If you are searching for ways to save money, the following are a few for you to try:
Eat meals at home more. Rather than going out to eat with friends, enjoy a homemade meal instead. Have a potluck to cut costs.
Plan your meals based on what is on sale at the grocery store. Watch flyers for deals and specials.
Make a list before you go shopping and take it with you to the grocery store. When you have a list it can help you stay focused on the things that you need. That way you won’t be tempted to spend any extra money and fill up your cart.
See if your credit card provider will reduce your interest rate. Any money you can save on interest can be put into your emergency fund.
Review all of your memberships and contract. Does your cellphone really need to have all of the bells and whistles when all you do is text and call? Do you happen to have a gym membership that you don’t use very often? Do you have a premium cable subscription that you don’t ever watch? If you do, think about eliminating them and save more money.
Use public transportation more frequently. That will save on gas and helps the environment as well.
