7 Tips for Building an Emergency Fund
You know you should have some money put aside for emergencies, but you’re not quite sure how to make it happen. Maybe you’re already operating on a tight budget; maybe you’ve tried making savings a priority before and failed.
How do you manage to pay your monthly bills and still have enough left over to put aside for a rainy day? Here are seven easy ways to build an emergency savings fund, whatever your current income.
1. Save First, Not As an Afterthought
The first trick to savings is not to wait and see how much you have "left over” at the end of the month, but rather to “pay yourself first.” At the beginning of the month, or each time you get paid, put aside a certain amount toward your emergency savings before you do anything else.
Once this money is safely in your savings account, you won’t be tempted to spend it on all the other things that tend to crop up.
2. Set It and Forget It
Take things one step further by automating your savings to reduce any likelihood of human error (or weakness). Set up an automatic transfer from your checking to your savings account at the beginning of each month or each time you get a paycheck.
Whether you decide to contribute a set dollar amount or a percentage, taking this approach will ensure there’s no chance you’ll forget to put this money aside or use it for other things.
3. Stash Your Windfalls
Resist the urge to spend any extra money that comes in. If you get a rebate check, a stimulus check, a tax refund, or even $20 in a birthday card from your Great Aunt Patricia, stash it immediately in your emergency savings fund.
Since you weren’t counting on this money as part of your monthly budget, you’ll hardly miss it, and every little windfall will help get you closer to your savings goal.
4. Slash Your Budget
Free up extra money for savings by taking a red marker to your budget and trimming as much as you can.
Do you really need to pay for those 700 cable channels? Do you really need to eat out three times a week? Every bit you can slash from your monthly budget gives you more cash you can put toward your emergency fund.
Use these budgeting worksheets to find ways to save.
5. Increase Your Savings
We all know that getting started can sometimes be the hardest part. Once you've hit your stride when it comes to getting in the habit of saving, look for opportunities to increase your contributions.
For example: If you decided to save 10% of your monthly paycheck, or $100 per month, consider making a small increase. Set aside 12% or $110 instead of your base amount. It's likely you won't even notice the difference, and the small changes can really add up over time.
6. Let Your Money Grow
Make sure the money you’re saving is working for you by putting it into a high-yield savings account, money market account, or CD where it can grow and give you even more money down the road. Every extra dollar counts, so make sure you’re getting the maximum return for your investment.
However, don't forget that if you need to dip into your emergency savings account, you'll likely need quick access to the money. For that reason, it's a good idea to ensure that your money is in a liquid account. That means you can withdraw from it quickly and without penalty.
7. Keep Saving Beyond Your Goal
When you get started with saving for an emergency savings account, it's great to have a goal. One common recommendation is to save enough for three to six months' worth of living expenses. But what happens when you meet your goal?
By this point, it's likely that you've gotten accustomed to setting aside some of your income for your emergency fund. And just because you've met your goal doesn't mean you should stop saving. There's no such thing as having too much money saved for an emergency, so keep it up if you can.