Building an Emergency Fund is one of the most important things we can do for our family. We’ve all heard the expression; make sure you have a rainy day fund. In other words, be sure to have some money put aside for emergencies to avoid tapping into your available credit—or worse, going into debt.
Makes sense, right? 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.
So how does one manage to pay their monthly bills and still have enough money left over to save for a rainy day? Following are some tried-and-true suggestions for building an emergency savings fund—whatever your income level or financial situation.
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 towards 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.
Set It and Forget It
Take matters one step further by automating your savings to reduce any likelihood for 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 paid) so there’s no chance you’ll forget to put this money aside or use it for other preoccupations. Better still, if your employer offers direct deposit, earmark a dollar amount to be automatically withdrawn and deposited into your savings account directly from each paycheck. Even $25 a week turns into $600 in six months—or $1,200 in a year!
Stash Your Windfalls
Resist the urge to spend any extra money that happens to come your way. If you get a rebate check, a tax refund, or even $20 in a birthday card from your favorite Uncle, 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. Think of this money as “found” money.
Slash Your Budget
Free up extra money for savings by taking a red marker to your budget and trimming as much fat as possible. Do you really need to pay for those 700 cable channels? Do you really need to eat out 3 times a week? What about purchasing the store brand rather than the name brand for items such as coffee, cereal, ice cream, bread, and medication? Every bit you can slash from your monthly budget gives you more cash you can put towards your emergency fund.
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 certificate of deposit (CD) where it can grow, providing you with even more money when you need it. Just be sure that whatever savings instrument you use, your emergency money is readily accessible without incurring a penalty (i.e., an early withdrawal fee) for withdrawing it.
A Win-Win Proposition
If after a point in time you have achieved your emergency fund objective, use future savings for long-term savings and possible investment. After all, you have become accustomed to living without this money, why stop saving now?
Remember every dollar saved counts. And isn’t it better to keep more of your hard earned money to build an emergency fund (and possible future savings) rather than using a credit card to pay for every unexpected bill that comes your way? We think so.