Financial experts agree that having an emergency fund separate from your savings account can be the difference between financial hardship and a small set-back. If you don’t have at least three months worth of essential living expenses saved in a separate account for the unexpected job loss or inability to work and earn wages, you are flirting with fire. Here are some fool-proof ways to get that fund started and keep it growing:
Make It Automatic — for most of us saving goes by the wayside simply because life gets busy and we forget to make moving money into savings a priority. Most banks now offer automatic checking to savings transfers at no charge. Set up a monthly or bi-monthly transfer right after your paycheck gets credited to your account. This way the money get saved without any effort from you and it gets moved before you really even see it.
Cut The Spending — just like our out of sight out of mind savings priority cutting those unnecessary purchases from our budget get overlooked. Track every purchase for a few months and set aside any receipts from purchases that aren’t 100% necessary. Add up those purchases and commit to putting at least half of that amount into your emergency fund savings each month. This will grow your fund through small habit changes without it feeling like you are depriving yourself. Have that cup of Starbucks this week, just skip it the next.
Increase Your Goal — it may sound like too much to ask to plan for a savings increase when you aren’t even saving any at all, but floating along at a comfortable level isn’t always what is best for your goal. Consider adding 10% to your emergency fund savings monthly transfer every three months or so. Chances are that 10% isn’t enough to hurt your budget, but will definitely get you to the goal much faster. For example, if you are saving $50 a month for the first three months increasing it by 10% will make it $55, only $5 more dollars; but will also mean that you are saving over $70 per month by the end of the year.