Building an Emergency Fund

There’s no question about it: something WILL come up that you do not expect and most of these little problems will involve an outlay of cash.

And having some cash just for emergencies can radically reduce your stress and increase your options during difficult times.

For the longest time I didn’t understand how you could save that much money – I mean you needed all of it that very month, right? If you’re living paycheck to paycheck or even spending more than you earn it will be damn near impossible to save money for the future.

The first key step to an Emergency Fund is spending less than you make. It’s a simple, yet radical concept. Build a basic budget with income and expenses, cut expenses until you have some wiggle room.

Now that theoretically there’s some money left in your bank account there are a few general strategies for designating that cash for savings.

Pay Yourself First
Generally speaking if you have money “left over” after paying bills then we look for ways to spend it. This money is not necessarily wasted but be aware that there is always something else out there to buy. One solution is to make savings another bill. As soon as you get paid transfer $20 to another account and do not touch it.

If $20 is too much make it $10. If $20 is too little, make it $50. The point is not to give you a perfect amount but to find that through trial and error.

Bank Your Savings

Another method is to bank your savings from shopping. If you return from a successful grocery shopping trip and your coupons and sales knocked $18.02 off your total go to the computer and transfer $18.02 to savings.
Do the same everytime you shop an you’ll see those savings add up.
Or each time you DON’T spend money – when you watch a movie at home instead of going to the theater put the price of 2 tickets & popcorn into savings. When you brown bag your lunch instead of going out to the deli transfer that amount to savings.

Maximize Found Money

While Donna Freeman at Smart Spending frequently talks about picking up pennies and other change there are other ways to find money. Go through your clothes and search for bills in the pockets. Turn in recycling and save the cash.

Look around your house for something that has value, a DVD set you no longer watch, an old computer you can sell.  Turn over your closet and sell clothes at consignment or hold a garage sale and sell a variety of things.
The important step is to SAVE that money and resist the urges to spend it elsewhere.

Work Harder
Often times financial advisors talk about picking up extra shifts, a second job or working overtime and funneling that money into savings. It’s a tough pill to swallow in this economic climate but I can attest that if you are an excellent employee and put in the work you can keep more than one job. Even in a state with over 10% unemployment.
Working more serves a dual purpose of earning more money and having less time to spend money. If you focus on low cost or cost saving activities when you’re off work and do not succomb to spending more on convenience goods and services you can get ahead quicker. This might mean making a batch of PB&J for nights you work late instead of stopping to get fast food. Or looking for work appropriate shoes at a thrift store and on clearance before spending much, much more paying retail.

Make it Automatic

After a few months of regular savings you may find a pleasant result: a little cushion of money in your checking and savings accounts.  The best thing you can do at this point is to automate savings. Work with your bank system and set regular transfers to your saving account and make reminders to check in on that amount a few times a year.

Every year on your birthday add $10 a month to your savings.
When you get a raise put half of that amount towards savings.
When you save big on a monthly service (like trash or car insurance) put the difference in savings.

What works best? Honestly, that really depends on the person. I do a little of each strategy – a weekly automated transfer to my emergency fund, I save change to buy gift cards, work extra jobs and put that money towards savings and try to bank my savings.

I don’t pick up pennies but I do collect my own change and I don’t transfer ALL my savings to an Emergency Fund.  So do a little of what works for you and keep contributing to your goals.

Building an Emergency Fund

There’s no question about it: something WILL come up that you do not expect and most of these little problems will involve an outlay of cash.

And having some cash just for emergencies can radically reduce your stress and increase your options during difficult times.

For the longest time I didn’t understand how you could save that much money – I mean you needed all of it that very month, right? If you’re living paycheck to paycheck or even spending more than you earn it will be damn near impossible to save money for the future.

The first key step to an Emergency Fund is spending less than you make. It’s a simple, yet radical concept.

Now that *theoretically* there’s some money left in your bank account there are a few general strategies for designating that cash for savings.

Pay Yourself First
Generally speaking if you have money “left over” after paying bills then we look for ways to spend it. This money is not necessarily wasted but be aware that there is always something else out there to buy. One solution is to make savings another bill. As soon as you get paid transfer $20 to another account and do not touch it.
If $20 is too much make it $10. If $20 is too little, make it $50. The point is not to give you a perfect amount but to find that through trial and error.

Bank Your Savings
Another method is to bank your savings from shopping. If you return from a successful grocery shopping trip and your coupons and sales knocked $18.02 off your total go to the computer and transfer $18.02 to savings.
Do the same everytime you shop an you’ll see those savings add up.
Or each time you DON’T spend money – when you watch a movie at home instead of going to the theater put the price of 2 tickets & popcorn into savings. When you brown bag your lunch instead of going out to the deli transfer that amount to savings.

Maximize Found Money
While Donna Freeman frequently talks about picking up pennies and other change there are other ways to find money. Go through your clothes and search for bills in the pockets. Turn in recycling and save the cash.
Look around your house for something that has value, a DVD set you no longer watch, an old computer you can sell.  Turn over your closet and sell clothes at consignment or hold a garage sale and sell a variety of things.
The important step is to SAVE that money and resist the urges to spend it elsewhere.

Work Harder
Often times financial advisors talk about picking up extra shifts, a second job or working overtime and funneling that money into savings. It’s a tough pill to swallow in this economic climate but I can attest that if you are an excellent employee and put in the work you can keep more than one job. Even in a state with 10% unemployment
Working more serves a dual purpose of earning more money and having less time to spend money. If you focus on low cost or cost saving activities when you’re off work and do not succomb to spending more on convenience goods and services you can get ahead quicker. This might mean making a batch of PB&J for nights you work late instead of stopping to get fast food. Or looking for work appropriate shoes at a thrift store and on clearance before spending much, much more paying retail.

Make it Automatic
After a few months of regular savings you may find a pleasant result: a little cushion of money in your checking and savings accounts.  The best thing you can do at this point is to automate savings. Work with your bank system and set regular transfers to your saving account and make reminders to check in on that amount a few times a year.
Every year on your birthday add $10 a month to your savings.
When you get a raise put half of that amount towards savings.
When you save big on a monthly service (like trash or car insurance) put the difference in savings.

What works best? Honestly, that really depends on the person. I do a little of each strategy – a weekly automated transfer to my emergency fund, I save change to buy gift cards, work extra jobs and put that money towards savings and try to bank my savings.

I don’t pick up pennies but I do collect my own change and I don’t transfer ALL my savings to an Emergency Fund.

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4 thoughts on “Building an Emergency Fund

  1. Hello’
    I totally agree with what you are saying, especially what is happening to the world right now. An emergency fund is the way to go especially during difficult times when they will cushion you when you run short of cash. Thanks again for the wonderful advice.

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