Car trouble. Job loss. Emergency dental work. While unpleasant, unexpected situations like these can be downright catastrophic if you don't have money in an emergency fund set aside.
Ideally, an emergency savings account should have at least a few months’ worth of expenses to hold you over should you experience a loss in income or unexpected costly event. Without a cushion of cash to fall back on, you could end up defaulting on loans or falling deep into debt.
But if your emergency fund consists of a piggybank full of loose change or doesn't exist at all, it's time to start setting a little money aside. Here are a handful of surprisingly simple ways to jumpstart your emergency fund:
Treating your savings account like any other bill by budgeting and scheduling it is an excellent way to start your emergency fund and make sure it continues to grow. This will require a little planning and budgeting on your part. Determine how much you can realistically afford to set aside each month, whether it’s 10% of your monthly income or $20. If necessary, cut back on expenses in order to afford your new savings “bill.”
If you want to save more, faster, look for places you can really cut down on spending. An easy place to start is food. Skip eating out, use coupons when you grocery shop, and use cash when shopping to cut your food bill. Then, put the money you save towards your savings instead. Monthly memberships are another place you can save; for example, cancel your $60 monthly cable bill and deposit $60 extra in your savings each month.
Leaving your savings lumped into your checking account makes it easier to access and ultimately spend it elsewhere. Your emergency fund should be in an account by itself, whether it’s a separate checking account at a different bank or a savings account. Avoid tying your savings to your checking as well; the ease of transferring money between accounts can make it tempting to dip into your savings for things that aren’t really emergencies.
Most employers offer the option of having your paycheck automatically deposited into your account. Usually, you can go one step further and have a certain amount or percentage directed towards a different account. If your employer offers this option, consider having a set amount deducted each month or pay period. This way, the funds will go to your savings account before you have a chance to spend them.
Tax returns, bonuses, overtime pay, birthday gifts, and other windfalls provide the perfect opportunity to build up your savings account. It may not be as fun as buying a new pair of shoes or taking a vacation, but it’s one of the best ways to save money without cutting into your regular budget.
Chances are, you probably have quite a few things lying around the house you don’t need, want, or use anymore. Transform them into sources of income by selling them at a garage sale, on ebay or craigslist, or through your local classified ads. Gently used clothing and shoes can also be sold at secondhand clothing stores as well. Put the proceeds from your sales directly into a savings account.
Without an emergency fund, unexpected events or expenses could lead to serious financial problems. Luckily, you can jump start a savings account easily with these tips.