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7 tips for creating an emergency fund
Key takeaways:
An emergency fund prepares you for the unexpected. Broken-down appliances, car repairs, unusually high utility bills, or countless other unexpected expenses can throw you a curveball if you don't have money set aside. Saving money can be challenging when you're busy juggling the responsibilities of your personal and professional life but regardless of how tight your budget is, you can find ways to set aside a little extra.
Nearly half the country doesn't have at least $400 in emergency savings and if this sounds familiar, you are not alone. Saving isn't always easy but with the right approach, you can adopt habits that improve your financial life and reduce your stress. Want to be prepared for life's rainy days? Check out these tips on how to save money for an emergency fund.
1. Make saving an automatic process
The less you have to think about saving money, the easier the process is. Look for solutions that help you save money automatically. Some banks, for example, will round up your purchases to the nearest dollar and put the change in a savings account for you.
Many employers also offer automatic savings options where they take some of the money from your paycheck and invest it or put it in a savings account. You may even want to set up an automatic transfer from your bank account to your savings account the day you get paid.
2. Create a dedicated emergency fund
Don't keep your emergency funds with the rest of your money or they may get spent. Set up a separate account for your savings and if you're saving for multiple goals, consider setting up multiple accounts. You might want an account for emergencies such as losing your job, for example, another for your retirement savings, and one for your vacation fund, in addition to your emergency fund.
3. Set a goal
A goal will inspire you to stay on track. Decide how much money you want in your emergency savings account, set a target date for when you plan to reach that number, and start saving. Watching your account grow every month can be very satisfying and once you reach your goal, you should set a new one.
Keep in mind that an emergency fund doesn't need unlimited funds – if $400 covers most of your potential rainy day needs, you may just want to keep $800 in your emergency fund account. This amount prepares you for about two bad days. You can direct your extra money to another savings account once you get past $800 and when you spend money from your emergency account, you can focus on building it back up again.
4. Start small
Saving money is a good habit and setting good habits takes time; there’s no shame in that. Start small. Even saving just a few dollars a week helps you get in the habit of saving.
Look at your budget to decide how much you can afford to save. This task can be daunting if you feel like every dollar is already allocated toward a certain expense but in this situation, you need to identify what expenses you can eliminate so that you can start saving.
5. Choose a liquid savings vehicle
Emergency funds need to be liquid so that you can access them easily. Liquid, in the world of investing, simply means that the funds can be converted to cash quickly. You never know when you're going to face an unexpected expense so you need to be able to access your funds relatively easily.
A savings account that you can access with an ATM card is liquid. A 401(k) account, in contrast, is not liquid because you need to jump through several hoops to access these funds.
6. Focus on long-term satisfaction
Saving money requires you to forgo instant gratification for long-term satisfaction. You have to put a few dollars in a savings account, for example, instead of enjoying a latte on your way to work or skip drinks with friends to sock away $100 into your emergency fund.
Don't focus on what you are giving up. Think about what you are going to gain. An emergency fund means that you can handle that unexpected car repair without ignoring your electricity bill. It means that you can buy your child new clothes when they have an intense growth spurt two months after your last shopping trip.
These occasions can feel like despair when you don't have money to deal with them. An emergency fund helps you get through them easily and painlessly. Think about this upside as you save.
7. Build-in accountability
Being accountable to someone else can help you achieve certain goals. Working out, for instance, can be easier if you have a workout buddy or a trainer to keep you motivated. Saving money is exactly the same – the process is easier if you build in a way to be accountable.
Find a friend who also wants to save and keep each other updated on your progress. Commit to checking in with each other before you access the funds in your emergency savings account. That can help you to avoid frivolous expenditures.
Start saving with SecureSave
SecureSave is designed to make creating an emergency fund fast and easy. It is a free emergency savings account that takes automatic deductions out of your paycheck every month and tracks your progress to your goal. It is completely liquid which means you can access the funds whenever you need them and it also lets your employer match your contributions.
You can request to have your employer add SecureSave to its list of benefits – simply add your name to the waiting list today. Secure is dedicated to helping people save and improving the benefits offered by businesses. Contact us today to learn more.