Ways to Speed Up Saving for Your Emergency Fund

Tuesday, January 7, 2020
   
Ways to Speed Up Saving for Your Emergency Fund

Financial emergencies happen to everyone. Unfortunately, not everyone has a plan to handle a financial emergency.

What will you do when an unexpected large expense looms? If you don’t have a good answer, keep reading for tips on how to start building or speed up saving for your emergency fund.

Set a goal; make a plan.

Most financial experts advise that you save between three and six months of living expenses to cover emergencies. This may not be realistic if you’re just beginning to save. If that is the case, start with a smaller goal such as $500 or $1,000. Once you have achieved that goal, you can start to raise your future goals until you reach the three to six month threshold.

Determine where to hold the money.

Your emergency fund should be separate from the accounts you use for every day spending. Placing your emergency money in the same account as the one you use for every day spending can make it too easy to “borrow” the funds for non-emergencies. Instead, place your emergency funds into an interest-bearing account that’s specifically designated for this purpose. Remember, your emergency fund is not an investment - it is meant to be easily accessible when needed in a hurry.

Get creative with how you save or earn.

Building an emergency fund means you’ll probably need to cut spending in other areas. Quick fixes like evaluating your cell phone plan, getting rid of cable or cutting back on dining out can help free up money for savings. You may also consider a part time job, such as evening sales in a department store, waiting tables, or driving for a ride-sharing company. These measures do not have to be permanent, but can help you build your emergency fund in the short term.

Save unexpected income.

You can boost the balance of your emergency fund when you least expect it with “found” money. Put any birthday or holiday cash gifts, work bonuses and tax refunds directly into your account and see how quickly you can reach your goal. Since this money isn’t part of your typical spending, it’s easy to use it for saving without missing it. Plus, once you reach your emergency fund goal, any future windfalls can be invested toward retirement or saved for a specific, planned purchase.

Make saving a habit.

We all know that saving money to mitigate emergencies is a good idea, but it’s easy to get off track. Sometimes we let the desire to have more stuff get in the way. Treat your emergency fund like any other monthly recurring bill. You’ll be less likely to miss the money and can sleep well knowing you have a safety net when life interruptions occur. Also, once your emergency account is fully funded, your savings habit will help you to better plan for a new home, a new car, or your eventual retirement.

An emergency fund isn’t a luxury—it’s a necessity. It is an important way to protect your financial well-being.