Get a Micro Emergency Fund NowThe first step is to set aside a “micro fund” of $1,000 or two weeks of pay, whichever is larger.
A micro fund will help you endure any substantial, unexpected expenses, like a major car repair bill or replacing your furnace. It’s an essential first step toward building a full-fledged emergency fund to help you weather even larger financial problems, like losing your job or a sudden illness or injury.
Savings GoalsMost financial experts say you should have enough money in your emergency fund to cover your expenses for three to six months. That may sound like a daunting objective, so break it up into smaller, “stepping stone” goals.
Once your micro emergency fund is in place, begin working toward saving a month’s worth of living expenses. Then add another month, and another, until you reach your final goal.
Do the MathTo determine your monthly emergency fund objective, look at ALL your current expenses. Some are paid monthly while other bills, like auto insurance, are only paid once or twice a year. Calculate a monthly average for any infrequent expenses or bills that vary from month to month.
This list may help identify items to include:
If you lost your job, you would probably cut back on as many of these expenses as possible. However, while planning for an emergency fund, it’s best to set a savings goal that covers all your current spending levels. (Plus, you can always trim some of the “extras” to help reach your goals.)
Finding Money To SaveIf you are living paycheck to paycheck, saving anything may seem like a challenging goal. However, it’s even more critical that you have an emergency fund! Try these tactics.
Discover and Eliminate
Look at your current expenditures and cancel anything unnecessary. You may discover that you’ve set up automatic payments to subscriptions that you don’t use or have forgotten. It may take some effort to find them. Since some charges only hit annually, you’ll need to review an entire year of bills. It may be easier to use an app that ferrets out or records all your subscriptions.
Make Small Cost-Cutting Decisions
You don’t have to stop eating out, but you might want to reduce the frequency or choose a budget-priced meal until your safety net is in place. Or, fix coffee at home before leaving work instead of making daily stops for a latte. Select generics or less expensive brands rather than name brands on prescriptions, snacks, foods, household supplies, etc.
Each of these decisions and others may seem trivial. However, they add up over time. Your results will be most noticeable if you transfer what you WOULD have spent into a savings account or stash away the extra cash every day.
Compare and Shop Around
You may be able to reduce some of your more substantial expenditures too. Shop around and compare prices, including rates for car insurance, credit card interest (if you are carrying a balance), cell phone services, etc.
You may end up with even better service at a lower price. Or, you may be able to get your current provider to match a competitor’s lower prices without the hassle of changing companies. That’s free money for your emergency fund!
Stepping Up Your SavingsOnce you’ve secured a three-month fund, aim for more. Celebrate each step toward your goal and rest easier knowing that, should an emergency strike, you’ll be able to get through it without going into debt or leaning on family and friends.
Get started today and rest easier tomorrow!