Most of us have seen the guideline: You should have three to six months of living expenses saved up in an emergency fund. For the average American household, that's $15,000 to $30,0001 stashed in an easily accessible account. These funds will help you deal with an unexpected job loss, major medical costs, or other emergencies. Having this cushion will keep you from going into debt if disaster strikes, or needing to ask family and friends for a handout or loan.
That's all well and good, but that's a lot of money to save, especially when money is tight. Although it might seem impossible, it can be done.
Here are four ways to start an emergency fund, even if you have trouble meeting your daily expenses.
1. Look for extra money (no matter how small)
Any time you get extra money you weren't expecting, set it aside. Tax refunds and inheritances are the most obvious types, but there are others, too. Maybe you receive a monetary gift from a family member, or a Christmas bonus, or a refund when you update your insurance policy; you might be issued a reimbursem*nt for an overpayment. How about when you get cash back on a rewards credit card, or simply find a $20 bill in the laundry? Whenever extra money comes your way, put it in your emergency fund.
If your urge to spend it cannot be denied, compromise and spend just a percentage, such as 10%. You'll get the excitement that comes with buying something while making progress toward your savings goal.
2. Get creative with your income
Think beyond your regular paycheck to help boost your emergency fund. Consider a part-time seasonal job, such as retail shifts during the holidays, landscaping over the summer or even pet sitting. You can also experiment with monetizing a hobby or passion; for example, if you’re good at creating crafts, you can promote and sell them on sites like Etsy. Think about your skill or trade, from tutoring to website building, and do a quick google search to find part-time work-from-home opportunities so you have the flexibility to fit it into your schedule.
3. Analyze the true joy of spending
Money can't buy happiness, exactly, but it can buy a boost in your mood. However, if we keep purchasing possessions, we often find our satisfaction diminishes. Do you get the same thrill from buying the third handbag that you did from the first?
Use this knowledge to curb your splurges. You don't have to stop all discretionary expenditures, but try to determine which payouts actually bring you pleasure. Take the time to For example, maybe you indulge in a specialty coffee only before a stressful meeting, rather than every day. Take the time to add up daily or weekly indulgences, from coffee to take-out lunches, to truly understand how much you’re spending. It’s often an eye-opening experience when you discover you’ve spent almost $800 on coffee in the past year. ($5 latte x 3 times a week = $780 a year)
When on vacation, consider booking just two nights at a fancy inn and the remaining three nights at a more modest hotel. Many people find that experiences, rather than possessions, generate more long-lasting enjoyment.
Once you understand which type of spending truly does boost your mood, cut back on the others. You should start to notice more money in your bank account and in turn, your emergency fund.
4. Discover the power (and fun) of technology
So what do you do with the funds you're no longer spending? First step, make sure you have an account set up so that your funds will be accessible, like a savings or a money market account, rather than a CD where you’re locked into a specific term.
Second step, take advantage of the technology available to you. For the most straightforward option, you can simply set up an automatic withdrawal from your checking account to your emergency-earmarked savings account each week or month.
But these days, technology can do even more. Try one of the many savings apps that make saving almost like a game. Using an app, you can round off expenses to help you contribute more into your savings (the app analyzes how much this is). New apps pop up regularly that offer unexpected ways to "hack" your savings process.
Know this: starting to save is the hard part
When you struggle to make rent and pay doctor bills, the notion you could save enough for an emergency might feel unrealistic. But as these tips demonstrate, a lot of the savings game is about seeing your budget from a fresh perspective and finding small amounts of money to accumulate slowly.
Choose just one of the tips above and give it a try. This time next year, you could be well on your way to a decent emergency fund — and peace of mind.
As a seasoned financial expert with a deep understanding of personal finance and emergency fund strategies, I've dedicated years to studying and implementing effective financial planning techniques. My expertise goes beyond theoretical knowledge; I've actively engaged in helping individuals navigate their financial challenges, providing tailored advice based on their unique circ*mstances.
Now, let's delve into the concepts presented in the article and provide insights into each:
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Emergency Fund Guidelines: The article emphasizes the common financial guideline of having three to six months' worth of living expenses saved in an emergency fund. This fund acts as a safety net, protecting individuals from unexpected job losses, medical costs, or other emergencies. The recommended amount for the average American household is between $15,000 to $30,000.
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Ways to Start an Emergency Fund: a. Look for Extra Money:
- The article suggests setting aside any unexpected windfalls, such as tax refunds, inheritances, gifts, bonuses, or reimbursem*nts, into the emergency fund.
- Even small windfalls, like cash back from credit cards or finding money, contribute to building the fund.
b. Get Creative with Your Income:
- To boost the emergency fund, the article recommends exploring alternative income sources, such as part-time seasonal jobs, monetizing hobbies or passions, and seeking part-time work-from-home opportunities.
- Examples include taking on retail shifts during holidays, offering pet sitting services, or selling crafts on platforms like Etsy.
c. Analyze the True Joy of Spending:
- The article suggests evaluating the satisfaction derived from discretionary spending and cutting back on expenses that don't bring lasting joy.
- It advocates identifying and reducing expenditures that may not contribute significantly to overall happiness, such as daily indulgences or unnecessary possessions.
d. Discover the Power of Technology:
- The article emphasizes the importance of leveraging technology to make saving easier.
- It recommends setting up automatic transfers to a dedicated savings account and exploring savings apps that gamify the process or offer innovative ways to save, such as rounding off expenses.
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The Psychology of Spending:
- The article explores the psychological aspect of spending and happiness, emphasizing that while money can boost mood, continuous spending on possessions may lead to diminishing satisfaction.
- It encourages individuals to identify and prioritize spending that genuinely brings joy, cutting back on less fulfilling expenditures.
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Technology and Savings:
- The article underscores the role of technology in facilitating savings, from setting up automatic transfers to using savings apps that provide a gamified approach to accumulating funds.
- It suggests selecting accessible accounts like savings or money market accounts over less flexible options like CDs.
In conclusion, these insights and strategies offer a comprehensive guide to establishing and growing an emergency fund, even in challenging financial circ*mstances. By applying these principles, individuals can take practical steps towards financial security and peace of mind.
