How’s your emergency fund?
If you answered, “Very robust,” good for you. You likely have a secure financial footing, so continue what you’re doing.
But if the words “your emergency fund” give you a deer-in-the-headlights pause, take heed! Financial experts agree that you should have enough savings set aside to cover several months’ worth of regular living expenses. This cushion will prove invaluable if you encounter the unexpected road bump – be it a medical issue, a homeowner’s headache, a major car repair, or some other kind of curveball life has thrown.
Stashing away several months’ worth of your living expenses for an emergency fund can feel daunting – especially if you need that money to pay your current bills. But if the time comes when you need that emergency account, you’ll be happy you planned ahead. It could be the step that keeps you out of debt and on solid financial footing.
Not sure how much is ideal in an emergency fund? Add up all your recurring monthly payments like your car, your renters/homeowner’s payments, and health insurance or medical bills. Then add your typical monthly expenses for gas, groceries, utilities etc. Use the total of those two as the minimum you should squirrel away to be able to cover any unforeseen major expenses without going into crippling debt.
So now that you’ve set up your emergency fund and have a rough idea of what should be in there, here are four ideas to help you build it up faster.
1. Don’t focus on the total!
Remember that the “several months’ worth of expenses” is just a goal. Even if you can only manage a few hundred bucks right now, every little bit will help if emergency bills hit. So don’t dwell on the total in your account but on the individual deposits you can make.
Sure, set a specific dollar amount as a goal based on your unique financial situation. But then view your goal in smaller chunks that you can actually achieve every month. If it’s only $50 right now, so be it! After one year, you’ll have saved $600. And getting the ball rolling is the hardest part – you might find ways to boost your monthly payment and watch your account grow even more.
2. There’s an app for that!
One of the best ways to save more is to save more consistently. It’s often easier to add a smaller amount each month rather than a large chunk of change all at once. And technology makes it easy to be consistent with automatic transfers and other apps that automate the entire process. No more forgetting to transfer funds or opting to skip a month because your automatic transfer will do it all for you.
To make these automatic transfers from your regular checking account to your emergency fund almost unnoticeable, consider aligning them with your payday. If you get paid via direct deposit, allot a percentage of each paycheck to go directly into your emergency savings account. That way, you’ll never even miss the money.
3. Trim the fat!
Can you identify just ONE regular expense you could stand to cut? Start with something small. Think: your daily pumpkin spice latte you could brew at home… the gym membership you never use … your subscription to that magazine you don’t read… your streaming music service you never listen to… The possibilities are endless and personal.
Alone, each of these expenditures might seem inconsequential – but they really add up over a year. Calculate the amount you spend on just one, eliminate it from your life, and put that money into your emergency fund instead. If you start out small and very specific, you’ll find yourself changing your overall attitude toward spending and saving.
4. Add to the kitty!
If you’ve hit your initial savings goal, pat yourself on the back for this great accomplishment. And now challenge yourself to work up to six or nine or even 12 months’ worth of expenses. Slowly and steadily, you can achieve this new target.
Keep your automatic transfers going, but consider increasing the size of those transfers at least a little. If you’re financially able, try to also make a few larger one-off deposits here and there. Did you get an unexpected bonus at work? Did you just sell your jet ski? Was this month’s electric bill lower than usual? Stash that cash right into your emergency fund before you have a chance to spend it.
Are you still struggling to find ways to bulk up – or start! – your emergency fund? If none of these quick ideas can help, reach out to the team at DebtGuru.com. One of our experienced financial advisors will help you brainstorm other methods you can use to build up your reserve of cash and bring you the peace of mind that comes with greater financial security.