Tuesday, August 23, 2016

How to Build Your Emergency Fund on a Budget

At this point, you're probably sick of hearing about the importance of an emergency fund. Yes, you get it: It's important to set aside money for the rainy days. But if you can barely save a month's worth of expenses, how can you possibly save up enough money for six months?

Luckily, you don't have to tighten the proverbial belt until you choke. By the time you're done with this list, you'll learn not only the specifics of starting an emergency fund, but also how to keep that fund nice and healthy.

Start Small, Think Big 
It's okay to aim for a specific goal, like saving up $1,000 in six months, but if you're not a habitual saver, that large goal might discourage you. Instead, set "micro quotas" and "macro goals" when you start building your emergency fund.

For example, let's say you need $600 six months from now. That's $100 per month, or $25 per week. Factor those figures into your weekly and monthly goals, whichever works better for you. The idea is to have a "macro goal" ($600 in six months), and break it down into smaller, more manageable "micro goals" ($100 per month or $25 per week).

Dial Back on Your Monthly Subscriptions 
Once you set your goals, your next step is determining how to achieve them. Your monthly expenditures are a good place to start.

How about your cable TV subscription? Assuming you're on the expanded basic package, you probably shell out around $65 per month. Since it's likely you don't even use half of your subscription, it may be a good idea to let it go. Services like Netflix and Hulu are often priced at a tiny fraction of cable TV services.

Use Your Credit Cards Wisely 
Don't be afraid to negotiate with your credit card company. Ask the credit card company if your annual percentage rate (APR) be lowered and always use your card (or cards) wisely. That means paying down those balances each and every month and only charging what you can afford to pay off when you get your statements. It's also wise to shop around, do some research and find the best credit card for you. That means looking into the benefits that come along with some cards, like receiving cashback offers for groceries and gas purchases, and what the APR is for each card.

It's smart to shop around, read objective customer reviews and decide which card best suits your needs.

Save, Save, Save 
Think about it: If you save a dollar a day, you'll have $365 by the end of the calendar year! Now, imagine doubling or tripling that number. The results put things into perspective.

Sift through your daily expenditures, and decide where you can cut back. For example, instead of buying coffee from your fave coffee shop every day, try every other day or a few times a week. Instead of buying separate insurance coverage for your car, try purchasing combined coverage packages for both your car and renters insurances. You'll be surprised at how small discounts can add up when you look for opportunities to reduce monthly bills.

Automate Your Emergency Fund 
Sometimes you’ll forget you have an emergency fund. Considering all the other things you have to worry about, who can blame you? However, you still need a way to stash extra cash without too much effort.

One solution is the automatic savings plan. As the term suggests, it automatically funnels cash into your emergency fund account on a regular basis. Ask your financial institution if this is an option you can utilize. "Set it and forget it" is always a handy feature.

Get Creative 
Building an emergency fund can be stressful. The temptation to dip into it ahead of time is overwhelming, and there's always the feeling that you're depriving yourself in some way. But believe it or not, saving money can be fun!

With careful planning, perseverance and patience, you can have adequate cash for the rainy days or those big financial goals in your future before you know it.

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