If you were faced with a $1,000 emergency, would you be able to cover the cost of it? If you answered no, you’re not alone. According to CNN Money, only 39% of Americans said they could pay for a $1,000 emergency in cash. One in five said they would put the expense on a credit card. Many others don’t have the credit to use this last resort option.
More than one-third of American households had an unplanned expense crop up in the previous year. Because unplanned bills are not uncommon, it would be wise of you to build an emergency fund for when they do arise. Of course, saving for a rainy day is easier said than done, especially if you’re already living paycheck to paycheck. Yet, it’s not impossible. These tips can help you get started, no matter how tight your budget currently is.
Assess What You Already Own
One of the quickest and easiest ways to start a nest egg is to sell off unused, unwanted and “haven’t-touched-them-in-years” items. Go through your belongings and make piles of things you’re willing to part with. List them on online marketplaces, such as Facebook, eBay, and Craigslist. If you have a lot of stuff you want to get rid of, consider hosting a garage sale. By taking a couple of hours of your time to price, photograph, and list your belongings, you can generate some quick cash.
Evaluate Your Current Budget
Next, go through your existing budget. Account for all your spending, from the essential to the non-essential, so you can determine where your money actually goes each month. Evaluate your fixed expenses, such as rent, cell-phone bills, insurance premiums, credit card payments, and utility bills, and see if there are ways you can save on each. For instance, if you live in a two-bedroom apartment when you only need one, consider moving. Call your cell phone company to see if you’re paying for services you don’t use. If you have outstanding credit card debt, call each lender to see if you qualify for lower interest rates.
Cut Out Non-Essentials
With your budget in front of you, take a good hard look at your non-essentials. Wants, spending cash, and discretionary spending all fall into the non-essential category. Itemize everything that is not necessary to your survival, such as meals out, happy hour, and salon appointments, and nix them. Bear in mind that because you’re building an emergency fund, these cuts only need to be temporary. Once you save your desired amount, you can add them back in as your situation dictates.
It’s difficult to work toward something if you don’t know what it is, exactly, that you’re working toward. Make things easy on yourself by setting a number. Setting out to save $1,000 is a good start, though a personal financial advisor from Summitry can help you create more realistic goals based on your lifestyle. Once you meet your initial goal, you may feel so accomplished that you’ll want to meet another, and then another, setting you on the path toward retirement savings.
Treat Your Savings as a Monthly Bill
You manage to pay your cable bill every month, yet you fail to exercise that same discipline when it comes to your future. This is because there are no immediate consequences for not saving for a rainy day. Though you won’t receive calls from creditors or have your lights cut off for not putting money in a savings account, you should pretend that your savings is a monthly bill by having money automatically withdrawn from your checking and deposited into a separate savings account each month. With the money out of sight, you won’t be tempted to use it, but you’ll still have access to it if you need it.
Saving up an emergency fund doesn’t have to be difficult. By taking the above five steps, you can be prepared should an unplanned expense arise.