Don't let an emergency savings fund give you anxiety; here's an easy way to save for a rainy day.
You know you need an emergency savings fund, but money's tight. You feel sure you can start saving as soon as that one credit card is paid off. Then it happens.
You're driving to work; the warm sun is shining through the trees. Adele is at full volume on the car stereo, and you can't help but dance in your seat and sing along. Then ... BAM! A monster pothole appears from nowhere, and your right front tire blows out.
Unfortunately, the spare is completely flat. You call a tow truck, buy a new tire, and $170 later, you're home.
This wouldn't be so bad except for the fact that you just had to buy a new car battery last week and your dog had an emergency trip to the vet three weeks ago. That emergency savings fund you meant to start sure would come in handy right now. The good news is that it's never too late to start saving. Here are seven painless ways to get going.
7 Emergency Savings Fund Tips That Even the Most Cash-strapped Can Pull Off
1. Don't get ahead of yourself
The standard advice is that you need six to nine months' worth of expenses in your emergency fund. That's a great goal, but it's also an overwhelming amount of money for most of us. Writing for The Wall Street Journal, Ted Beck recommends starting with a goal of $500. When you reach that goal, go for $1,000. Keep saving toward small, attainable goals, and eventually, it adds up.
2. Know where your money goes
It's hard to save money if you don't know where it all disappears to. Two dollars on a cup of coffee may not seem like much, but when you buy a cup each day at work, it adds up. Use a budgeting app like YNAB or Mvelopes to track your spending and to give your money a job.
3. Make your emergency fund accessible (but not too accessible)
The point of an emergency savings fund is to have access to cash when an unexpected expense comes up. An emergency fund that's tied up in real estate or stocks isn't going to be easy to get to. On the other hand, it's easy to spend your funds if they're too easy to access (unless you're truly disciplined). Set up a savings account strictly as an emergency account.
4. Make it easy to build your emergency fund
The less you have to think about building your emergency fund, the easier it is to follow through. Set up automatic transfers for each pay period. Do you get paid on the 15th and 30th of each month? Set up an automatic transfer to your savings account on those days. It doesn't have to be much; even $50 per paycheck gets you to that $500 goal in five months. If ever there is a time to "set it and forget it," this is it.
5. When to use your emergency fund
Ultimately, using your emergency fund is an individual call, but here are three questions from finance guru Dave Ramsey to guide you:
- Is it unexpected?
- Is it necessary?
- Is it urgent?
If the expense meets the above criteria, and it's a choice between using your emergency savings or a credit card, it most likely qualifies as an emergency fund expense.
6. Using your emergency savings fund to avoid credit card debt
Credit card debt may be the root of all evil as far as your financial health is concerned. For instance, the average interest rate on a credit card is between 13% and 16%. As an example, $2,000 in credit card debt takes about $230 out of your monthly budget and could cost you an extra $227 in interest. So if you have money in your emergency savings fund and the expense qualifies as an emergency, use your fund. Adding to your credit card debt is only going to add to your financial burden. You can use interest.com's minimum payment calculator to estimate your financial obligations in different scenarios.
7. Emergency mode
If you do get into a situation where you need to rely on your emergency funds for an extended period, there are a number of things you can do to minimize expenses and extend your resources. A few expense-cutting measures include:
1. Planning and cooking your own meals
Pre-made meals and boxed items like cereal are expensive. Your dollars go much farther when you plan your meals and make your own food. Take bagged lunches to work and school. Make oatmeal for breakfast. There are plenty of budget-friendly recipes online at sites like Delish.com and Pocket Change Gourmet.
2. Cut out the extras
Do you need cable? That Spotify membership? Your housekeeping service? Can you get books at the library instead of the bookstore? This isn't to say that you should cut out every possible expense, but you do need to set priorities.
3. Don't replace, repair
It's much less expensive to sew a button onto your shirt or take your vacuum cleaner to a repair shop than it is to buy new ones. Repair what you can, make adjustments if you can't, and replace it if you need to.
The simple fact is that surprises happen. There's no way to avoid those odd expenses that pop up out of nowhere. The best you can do is plan for it and try to make the best of each situation.
The right insurance is one measure you can take to help cover some surprise expenses. The right auto insurance or homeowners insurance may be just what you need to get back on your feet.
Get in touch with your local Pekin Insurance agent today and discover the possibilities.