Prepare to weather the storms of life
Easy Ways to Build an Emergency Fund
by Chantal King
How am I supposed to create an emergency fund when there's no money left at the end of the month? Have you ever asked yourself this question? Saving money can be a challenge no matter how much money you make. There will always be one more unexpected bill, one more item to buy, or one more payment to make. Yet, creating a cushion, or an emergency fund, is one of the smartest financial gifts you can give yourself. Here are some tips to get you started.
- Change your mindset. Don't think of saving as deprivation; instead, consider it preparation for life's ups and downs.
- Pay yourself first. If you wait until everything else is paid, you will come up short on savings. Set aside a portion of your paycheck each month. Try for 10%, but even a little adds up over the long haul.
- Set up an automatic deposit into a special account, before you even get your paycheck. Out of sight means out of mind. You probably won't even miss it.
- Aggressively tackle your debt. Add extra money to the minimum payments until the balances are all paid off. No debt means peace of mind and more money to work with.
- Once the debt is gone, keep making those payments to your emergency fund.
- Curb spending by enforcing a 24-hour waiting period. Even going out to your vehicle in the parking lot and asking yourself if the item is a need or a want can cut down on your impulse buys.
- Leave your credit cards at home. Studies have shown that plastic is much easier to spend than actual cash. So if you shop with cash only, you will not go over budget. Once the money is gone, it is time to head home.
- Throw some fun and entertainment into the budget. Even if it is only a $2 movie rental, you have to allow yourself some fun. Turning saving into a chore will only backfire.
- Where you keep your emergency fund is as important as building it. Set up a special account, perhaps even at a different bank. Making the money harder to withdraw will help you think twice about what an actual emergency is.
- Set mini goals and reward yourself when you reach them. It is much easier to work toward a goal than the vague notion of "saving more money." When you reward yourself, your determination grows to reach the next goal.
- Remove temptation. Quit going to the Mall just to browse. Don't look at the sales ads if you can't pass up a bargain, even if it is something you don't need. Don't go new car shopping if you know you can't afford another payment.
- Once your emergency fund starts growing, treat it like a friend. You know it will be there for you if you need it. Don't overuse it or treat it carelessly.
- Enjoy compounding interest. Look for a savings plan that gives you interest and the higher the better. Your fund will grow that much faster.
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Creating an emergency fund is possible at any income level. As the fund grows, your peace of mind will, also. We all know that emergencies do happen, and being prepared for it can make all the difference between weathering the storm and being overwhelmed. If you don't have an emergency fund yet, today is the day to begin building one.
Reviewed February 2018
Take the Next Step:
- Use your emergency fund wisely. These guidelines explain when to dip into your emergency fund and when to stay out of it.
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- Learn the 10 most important things you should know about compound interest.
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