Life is full of unpredictable events. It’s much easier to fix your car, repair your house, replace a home appliance, or cover an unexpected bill when you have an emergency fund savings account. Sometimes called a “rainy day fund,” your emergency fund acts as a cushion for unforeseen expenses so that you can avoid borrowing money or racking up credit card debt.
How much should you put in your emergency fund? We recommend saving enough to cover four to six months of living expenses. That goal might feel daunting, but with these four tips, you’ll be well on your way to hitting your savings goal.
1. Create a budget that allows you to save each month.
Creating an emergency fund is easier when you follow a monthly budget. One way to budget is to divide your paycheck into three amounts—how much to allocate to needs, how much to spend on wants, and how much to save.
When looking at spending on wants and needs, start by adding up your current monthly expenses. This includes what you regularly spend on housing, food, transportation, clothing, insurance, entertainment, and other categories. The more aware you are of your monthly expenses, the more intentional you can be about building up your savings. In the process, you might find areas of your spending that could be cut in order to have more funds to allocate to a savings account.
Once you know how much you plan to save each month, it can be helpful to set up automatic transfers so that a certain percentage of each paycheck will automatically go into a dedicated savings account. Automating your savings is the easiest way to grow your emergency fund, and will help you stay in the habit of saving.
2. Keep your change.
If you prefer to make purchases with cash, you can easily kickstart your emergency fund by saving up your change.
For example, let’s say you buy a drink and a snack from a convenience store, breaking a five-dollar bill and getting a handful of change. When you get home, put that change into a large mason jar. When the jar finally fills to the brim, bring it to the bank and deposit it. You can do the same thing when you break a twenty-dollar bill, too. Simply add the fives and singles you get back as change in the jar, and bring it in when you’re ready to add the cash to your account.
Many of today’s leading banks offer savings programs that electronically mimic the habit of saving your change. For example, First State Community Bank’s Pocket Change program rounds up each purchase you make with your FSCB Debit MasterCard® to the next dollar and deposits the extra funds into your savings account—enabling you to save your change without having to consciously manage the process.
3. Lower your expenses wherever you can.
One of the easiest ways to save money is by reducing expenses. Here are a few ways to do that:
Cut the cord. Cable prices continue to increase. This is why more than 33 million Americans have “cut the cord,” ditching their cable subscriptions and opting to use services such as Netflix, YouTube TV, Hulu, Sling TV, and Amazon Prime Video for entertainment—often saving a good chunk of money along the way.
Buy a used car. If you’re in the market for a new car, consider buying a used vehicle. According to CARFAX, a new car loses 10 percent in value after it’s driven off the lot for the first time. Purchasing an older version of the model you have in mind could help you save thousands of dollars.
Bring coffee and lunch from home. That daily five-dollar coffee or ten-dollar lunch stop really does add up. Choosing to make coffee at home and pack a lunch for the workday will help you cut expenses, allowing you to add to your emergency fund instead. Similarly, choosing to buy groceries and cook meals at home rather than going out to eat will make it much easier to increase your monthly savings.
4. Increase or supplement your income.
So far, we’ve discussed ways to cut down on expenses in order to save toward a rainy day fund. Another way to increase the amount you can save is to increase your income and keep expenses the same, or lower, in order to have more money available for savings.
Whether it’s asking for a raise, taking on more hours, or launching a side hustle, finding a way to grow your income will help you build up your emergency fund more quickly.
Start funding your emergency account today!
Ultimately, a rainy day account is about peace of mind. With an emergency fund in place, you’ll be able to handle unexpected expenses as they arise and focus on building wealth in other ways, such as contributing to retirement and paying down loans. Need assistance setting up your emergency fund? Click here to get in touch with a member of our team. We look forward to hearing from you!