How To: Save Money for Emergencies

Last week we covered why you need an emergency fund, a savings account with 3–6 months worth of income. To recap, an emergency fund prepares you for exactly that — an emergency. This fund should be kept separate from any other savings you may have, and allows you to cover basic living expenses should you lose your income. It also allows you to avoid added stress when the unexpected happens, giving you peace of mind and financial stability in a crisis. Although we all hope we never need one, it’s better to be too prepared than get stuck needing savings when you have none.

But, where do you begin?

If you don’t have any savings, it could seem like an impossible goal. With these simple tips, you can have a strong emergency fund in no time.

Start Small and Set Goals

An emergency fund should contain 3–6 months worth of living expenses, but it’s important to make your initial savings goals more attainable. When you start with a smaller goal, you’re much more likely to get started and be successful.

Depending on your financial situation, come up with a savings goal that allows for some financial buffer but is still within reach. You could start by choosing a small sum of just $250 to $500, or come up with a savings goal based on a percentage of your monthly expenses. Starting with a goal of just half of one month’s expenses is a great place to start.

Next, break this down into a monthly amount that you will set aside for your growing fund. If you are paid bi-weekly, it may be easier to come up with a set amount that is taken directly out of your paycheck, that way the emergency fund money never even touches your checking account. Either way, coming up with a monthly or bi-weekly savings amount will likely mean that you’ll have to change your spending habits. This will require you to take a hard look at your monthly expenses and re-evaluate what you need versus what you want.

Budget Cuts are Savings Gains

Instead of focusing on what you’re giving up, think of what you’re gaining and what that means to you. Keep in mind that any budget cuts you make are savings gains. An emergency fund doesn’t the provide immediate gratification that spending will, but it does give you peace of mind in a crisis and prepare you for all of life’s surprises. Try to cut spending on anything that can’t be replaced with cheaper alternatives.

Giving up eating out for lunch or buying your morning coffee could easily be replaced by doing these things at home, for example. Cable can be swapped out with Netflix and Hulu, and planning your meals can save you hundreds of dollars on food waste. Making energy efficient adjustments in your home can save you on utility costs, and even making small changes in your energy habits at home can save you big. Smarter spending and budgeting can go a long way.

To help you save more efficiently, use OnePay to save on monthly bills and use those savings for your emergency fund. Paying bills on time will also help you avoid overspending due to late fees, which can also add to your debt and eventually affect your credit score. OnePay will look through all of your monthly bills on your behalf to find you the best savings opportunities. Paying all of your bills on the first of each month makes it easier to budget as well, allowing you to see clearly how much money you have left-over for the rest of the month.

Create a Separate Savings Account

Most banks offer online banking and apps to easily access, track, and transfer funds from your smart phone. This is great for doing daily check-ins of your spending, depositing checks from home, and avoiding a trip to the bank. For your savings account, however, it can do more harm than good. With your emergency fund accessible on your smart fund, it’s too tempting to transfer funds to your checking account for expenses that aren’t real emergencies.

Instead of having your savings account where you can easily access it, keep your emergency fund in a separate account. Look for a savings account that offers a high APY, which stands for Annual Percentage Yield. Here’s a good list of the best savings accounts for 2016 to get you started. Once you have this separate account, set your monthly savings to direct deposit, that way you can set it and forget it. When you automate your savings, you’re much less likely to spend this money elsewhere.

Set New Goals

Once you’ve reached your first savings goal, it’s time to set a new one! Don’t be tempted to withdraw from this fund now that you’ve hit your first milestone. Instead, think about how much closer you are now to your larger goal of 3–6 months expenses and refocus your efforts. See if you can increase the amount for this new goal, or increase the amount you are setting aside each month to reach your goals faster.

The hardest part about saving money is getting started, so once you get things going it will only get easier and your 3–6 month savings goal won’t seem so far out of reach.

Ultimately, you have decided to save for emergencies because you’ve decided that your financial stability is something you value. Always remember that the small things you are giving up are giving your stability, peace of mind, and options in a crisis. Adjusting your budget to accommodate your new values is benefiting you, and is something to be proud of.

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