Cars break down, hot water heaters stop working, someone in the family is injured, you lose a client…
When you take a financial hit, though, it’s much easier to handle if you’re prepared. Easier said than done when you’re living paycheck to paycheck, right?
Actually, it’s not that hard to start building an emergency fund if you’re committed and realize it won’t happen overnight. Here’s how to get started, and make saving for the unexpected a habit you’ll never break.
Be like a squirrel. In order to stockpile a healthy fund for when emergencies strike, get in the habit of working at it everyday. Plop your extra change into a jar and watch it fill up.
Every time you get a $1 or $5 bill as change in a store, put it in an envelope and make a deposit at the end of the week. Find a habit that works for you, and you’ll be surprised and delighted at how those small savings add up.
Put it on auto pilot. How many weeks have you paid all of your bills, bought groceries, and went out for dinner and a movie, only to find that you had nothing left to put into savings? It’s understandable, but the fact is you’ll always find something else to spend your money on.
That’s why if you take it right off the top of your paycheck, you’ll never “feel” it. Set up an automatic transfer on the date you are regularly paid. Again, even $20 a week is better than nothing. If you do it successfully with no struggles, slightly increase the amount.
Split up surprises. Every time you get an unexpected bonus at work (lucky you!), a monetary gift for an occasion, or perhaps a healthy tax return, pick a percentage of it — say 25 percent — to dedicate toward your emergency account.
You’ll want to treat yourself in some way with a portion of it, of course, or use some to put a dent in your debt, but extra money is the perfect time to grow your account.
Set up your account wisely. Don’t just hide cash under the mattress, or make a mental note of how much of your checking account balance is off limits. Take the time to open a dedicated emergency account, preferably one that earns interest, and don’t link your ATM card to it.
That way, should you need to dip into it, you’ll have to walk up to a teller to make a withdrawal (which you won’t likely do for a purchase you don’t really need).
Give it up. In other words, to really give your emergency fund a boost, you may have to make some sacrifices. Whether it’s downgrading your cable account, giving up a takeout night in favor of a cheaper home-cooked meal, or quitting your latte habit, take what you would have spent on those luxuries and sock it away.
Try it for a month, and then see if you can take it further. After you reach a specific savings goal, give yourself a reward.
It will require work and effort on your part, but isn’t your peace of mind worth it? Build your emergency fund starting now, and worry less as it grows.
What’s one you’ve sacrificed to jump start your emergency fund? Share your thoughts in the comments or on our Facebook page.