5 Easy Steps to Set Up an Emergency Savings Fund
In this tough economy, it can be more than challenging set money aside for items needed on a daily basis, so saving money for anything more than the basics can feel impossible. According to a study conducted by the National Foundation for Credit Counseling (NFCC), it’s for this reason that most Americans find it difficult to save any money towards an emergency fund.
If you are struggling to set money aside in a savings account, what can you do to begin the process of saving for an emergency? Believe it or not, there are a few easy ways to set up an emergency fund for your household.
Most Americans Lack a Solid Emergency Fund
A study conducted in 2011 by the National Foundation for Credit Counseling revealed that 64 percent of Americans did not have $1,000 saved in emergency funds.
As a result, many people are turning to outside sources to acquire needed cash, the study found. Among the options people utilize to acquire money for emergencies include taking out loans (9 percent), borrowing from friends (17 percent), cash advances on credit cards (9 percent) and selling or pawning items (12 percent).
Another 17 percent choose to disregard their other monthly bills when faced with an emergency that requires money.
Experts say that, ideally, people should have enough money saved in an emergency fund to cover six months of expenses. In other words, if you need $3,000 to live on each month then you need $18,000 set aside in emergency savings.
As determined by the study, most people don’t have nearly enough money to help them get by if an emergency occurs, or worse, if they lose their primary source of income. Unfortunately, getting the money saved up with just enough income to get by doesn’t making saving any easier.
Setting Aside Emergency Savings
So how can you set aside emergency savings when most of your income is dedicated to needed expenses? Here are a few ways to get the ball rolling:
1. Spend with cash and save your change: One way to start saving emergency cash is to spend with cash then save your change. Many people are accustomed to buying items with plastic (debit or credit), but you can opt to pay with cash instead, then save the change and let it add up. You’d be surprised by how quickly you can have a few hundred dollars saved up to add to an emergency fund.
2. Open a seasonal savings account: Many banks offer seasonal accounts meant to save for holidays like Christmas. These accounts give you reduced access to your accounts, charging a hefty penalty each time you withdraw more than permitted. Since emergencies don’t occur often, a seasonal account could make sure you’re saving money by touching it only when needed.
3. Direct deposit into your savings: Another way to easily save cash for a rainy day is to have money directly deposited from your paycheck into a savings account. If you have access to your funds in your checking account, you’re more likely to spend it. Having your money set aside for you — and forgetting about it — makes a huge difference in your ability to save.
4. Sell unused items: Most people have items around the house that they no longer use. Rather than throw them away, start selling them. Of course, you have outlets like eBay to help you get rid of items from the comfort of your home. Also, you can take your clothes to a consignment shop to have them sell items for you. After earning this money, you need to add it to your savings account, or the effort made will have been wasted.
5. Spend less: The last tip seems like an obvious one that is too challenging to accomplish when money is tight. But actually, most people spend money on more unnecessary items than they think. Whether you’re eating out once a week, or buying gas at an expensive station, every dollar overspent could be added to an emergency fund. So take time to look at where your money is being spent and begin to cut back. Saving $10 here and there could help you put a lot away in the long run.
Obviously, these savings options won’t help you set aside thousands of dollars in a few months’ time, but they can help you get used to saving emergency money and give you a starter-stash to build on.
And when you do get a big chunk of cash (i.e. bonus from the job, tax refund, etc.), rather than buy the TV you’ve been wanting, put it into your emergency fund. This way, you can ensure you have money available when you need it.