You know you need an emergency fund in case you have unexpected car repairs, suddenly lose your job, or need to come up with the deductible for your insurance. What you don’t know is how to start building that emergency fund when you don’t have much in the way of extra money. Rather than live with the dread that comes with knowing you don’t have a financial parachute, learn how to slowly, but surely, build an emergency fund.
Understand What You’re Working With
One of the first things you should do is sit down and see how much income you bring in with each paycheck, where every penny of that money is going now, and if there are any cuts you can make to your budget. Maybe you’re going out to eat too much, paying for subscriptions you don’t use, or are paying more than absolutely necessary for your car insurance. Once you see how much you have coming in and going out, you can gain an understanding of where and how you can put a few dollars back into your emergency fund.
Pay Yourself First
What’s the first thing you do when you get paid? Once you’ve taken care of all your monthly bills, take a moment to see how much you have leftover. Before you have a night out on the town as a reward, it’s better to reward yourself with financial peace of mind. The money you may spend on drinks, cab fare, cover at a bar or club, or just a cup of coffee is money you can deposit into an emergency savings account. Pay yourself first, and add savings to your budget, so you don’t forget.
Consolidate Your Current Loans
You may have several loans spread out in your budget, such as your car payment, student loans, and a few credit card bills. Rather than having to remember all those due dates every month (and risk the late fees that come with them), and to see if you can save money on the interest you’re paying for those loans, consider consolidating everything with a single provider, such as SoFi, Discover, or LendingClub. If you live in the Nordics, look into Axo Finans, who operates in Sweden and Norway. With a consolidated loan, you just have one monthly payment to keep in mind, and a single interest rate to deal with.
Ask Your Friends and Family for Suggestions
You aren’t the only person struggling to buff up your emergency fund. Reach out to your family and friends to see if they have any useful suggestions to offer that you may not have thought of. It’s understandable that you may feel somewhat ashamed or reluctant to admit your financial house is in a bit of disarray, but there’s no shame in taking steps to change that for the better. You never know who those closest to you can put you in touch with to help you reach your financial goals that much faster.
Cut Where You Can
While you’re looking over how much money you have coming in and where it’s all going, scrutinize all of your bills. Is there a different movie streaming service provider you can switch to so you can lower your bill? Maybe you can bundle your music and TV show streaming service together. Know that there are free services available that can analyze your bills to see if there are saving opportunities you can take advantage of. After you’ve decided what can stay and what can go, do some research to see if there are any current money-saving offers provided by your service providers. By giving them a call, you could be able to score a lower rate and keep the same service for being a loyal customer. The money you save can be put towards your emergency fund.
Look Into Side Gigs
These days, it’s easier than ever to start a side gig, no matter where you live. You can become a driver for a rideshare or grocery delivery service, you can charge scooters, or you can become an independent contractor. Do some research online to see if there’s a side gig that fits your schedule and your skill set. One of the best things about having a side gig is the fact that you can set your own hours and be your own boss. That said, speak with an accountant to determine how much you’ll have to pay in taxes for all your extra income. You don’t want to solve the problem of building your emergency fund only to create another problem by owing the IRS money.
Look Into an Interest-Bearing Savings Account
Make the money you work so hard to save work for you. While your current bank may offer a savings account, it may not give you very much in the way of interest. See which companies offer the best interest rate on savings account, and be sure to see what fees you can expect. You deserve every reward for doing everything you can to be more financially responsible.
Download Couponing, Cashback, and Money-Saving Apps
There are plenty of apps that give you cash back and gift cards without you needing to spend more than you already do on groceries. The way these apps work is you take a picture of your grocery store receipt and either accrue points or get cash back for your purchases. Before you head to the grocery store, check the apps to see if there are specific deals or offers you can take advantage off; some of them may be limited-time offers. One of the best things about these apps is the fact that you can download the same receipt with different apps.
On a related note, see if your regular grocery store has a loyalty program or card. Do you already have one of these cards? You could save even more money by downloading your store’s app and seeing if they have coupons or sales you can take advantage of. You may be shocked to see just how much money you can save by combining the app with the card.
Think Twice About How You Spend Unexpected Money
When you get money for your birthday, a bonus at work, or your tax refund, think about putting a percentage of that money into your savings account. Sure, you may want to treat yourself to takeout, buy clothes, or something similar, but the pleasure you experience from spending your money in such a manner is fleeting. Knowing you have a financial safety net is a feeling that can last a lifetime.
Say you plan on spending your windfall in a way that’s truly financially responsible. If so, see if you can put at least a small percentage of that money into an emergency fund; just five or 10 percent is better than zero percent.
Save Your Money in an Account You Can’t Easily Access
It’s convenient to open a savings account with your current bank, especially if it offers a great interest rate. That said, going this route could make it tempting for you to dip into your emergency account for non-emergencies. You know yourself, and you know just how tempted you’ll be to do this. For that reason, open your emergency savings account with a different bank or institution. The more steps you have to complete to withdraw your money and gain access to it, the more time you have to think about whether transferring your funds is a good idea. Out of sight and out of mind is the way to go when it comes to emergency money.
Sell Extra Items
Look around your house. Are there any items you no longer need, want, or use that you could sell? Having a yard sale or selling your belongings online can make you a tidy sum of cash that can go directly into your emergency savings account. Even better is the fact that this tip frees up space in your house or garage.
True, it can be hard to put money back when you don’t have much leftover after your regular bills. When you change your perspective and use these tips, you could find you don’t need to make more money to save more money.
Like Us? Sign Up!
Subscribe to get the updates from The Free Financial Advisor.