Want to know an important financial skill to have? Hint: It’s nothing to do with being a numbers-whiz.
Answer: It’s having the discipline to set aside savings for emergencies.
Having an emergency fund is a critical first step towards financial stability and living debt-free.
Consider this scenario: you’re paycheck to paycheck and an unexpected doctor visit happens that goes on your credit card, which you struggle to pay off because you’re paycheck to paycheck, and then when your car needs a surprise part, that also goes on the credit card, and so on and so on as your debt continues to build.
Now consider this scenario: you’re paycheck to paycheck but you work hard to skim a little bit off each month into a dedicated emergency fund. After a few months, an unexpected doctor visit happens … and you’re able to pay it off in full with your emergency money. Then, you continue to work hard to re-fund that account, so when your car needs a surprise part, you can pay that off too. You start to feel more in control of your finances, and less stress.
Having an emergency savings fund helps you not only 1) dig out of debt, but 2) keep you from crawling back into debt. Win-win, right?
Right! Except sometimes it’s challenging to save money when things are tight. Or to stay motivated when you can only contribute a small amount. I hear you. It’s not as easy as it sounds.
Fortunately, once you know the importance of having an emergency fund, there are ways to speed up savings! Below are ten ways to turbo-charge your emergency fund so that you can get to your saving goals even faster.
1) Aim for a Number
It will be easier for you to achieve your savings goal if you know how much you’re aiming for. Most experts recommend having at least $1,000 in an emergency fund, and working your way up to the equivalent of 3 months of living expenses.
That might seem like a lot when you’re first starting out, but every little bit helps. Having the $1,000 benchmark also helps you understand how much you’ll need to save each month to get there.
2) Track Your Spending
Now that you know how much to save, you’ll need to know how to save. The first step is to track your money. You can use an app like mint.com for that, or try downloading our free budget tracker. This will help you group your spending into different categories (like rent, groceries, bills, dining out, etc.) and see where your hard-earned money is going.
Take special note of any categories that seem like they’re eating up a lot of your monthly income. Some people use the 50/30/20 rule as a good benchmark to understand if they’re spending the right amount. The rule is as follows: 50% needs (bills, rent, groceries), 30% wants (dining out, entertainment, shopping) and 20% savings (emergency fund, retirement, etc.).
3) Set Up Automatic Deposits
One of the top complaints about saving for emergencies is that it’s hard to find “leftover” money to put towards savings. Which is why you shouldn’t treat it as “leftover” money.
Instead, take money out of your paycheck automatically to put into savings. You won’t even notice the money missing as your emergency fund steadily grows.
4) Use a Round-Up App
One of my favorite ways to save without noticing is through savings apps that have a “round-up” feature. It’s a trigger-based rule in the app that basically rounds-up every purchase you make and saves the difference. So, if you paid $2.60 for coffee one morning, the app would put $.20 into your savings account.
It’s a very small amount when you look at each individual transaction, but it all adds up! I’ve used apps like Qapital to save over $100 in round-ups alone.
5) Trim the Fat from Your Spending
We talked about tracking your spending earlier, but now is the time to get down and dirty with the numbers. What areas of your spending can you cut down on? Could you shave $50 off of eating out per month and put that towards savings?
Try doing some rough calculations to determine the impact of less spending. For example, if you were to cut down on groceries by $40 a month, how much faster could you reach your savings goal?
6) Sell Things You Own
If you’ve already cut down as much as you can on spending, it may be time to get creative! One way is to sell your stuff and use the profit towards savings. You can sell lightly used clothes, old furniture, books, etc.
I’ve had friends who successfully use Threadup.com to sell their clothes, and craigslist to sell furniture. Some of their tips are to get as descriptive as possible in your posting, and be honest about any wear and tear to the item. Transparency helps build trust and actually helps sell the item faster!
7) Start a Side Hustle
Another way to save more money is to make more money! I started freelance writing as a way to make extra income to put towards saving and paying off my student loans. In fact, I was just able to pay off two of my loans with the help of my side hustles.
This blog is full of awesome tips and advice for starting your own side hustle. Some of my favorite posts include how to start making money by pet-sitting, tutoring or renting your place on airbnb.
If you like writing like me, than check out this post on how to start freelancing. Just know that some of these may take some time to get off the ground, but once they’re running they can be an awesome source of extra cash.
8) Save Windfalls
It’s tempting to think that windfalls (like a bonus or a tax return) are “fun money,” after all, they’re money on top of what you normally make. However, these windfalls are what will allow you to gain momentum on your savings even faster. Every bonus I’ve gotten for the past three years I’ve split between my emergency savings fund and student loans. It’s so satisfying to see the impact right away, rather than slowly chipping away.
If you’re having a hard time parting with your windfall, try compromising with yourself. Take 80% and put it towards your emergency fund, and take the other 20% and use it for whatever you want! That way you still feel like you got some “fun” money, and are working towards financial goals.
9) Avoid Product Markups
A good way to save money on the day-to-day items is to avoid products with the biggest markups. This means that retailers are selling the item at a much higher price than what they paid for it, allowing them to turn a higher profit. These items usually are able to sell with a higher price-point because of consumer demand.
According to wisebread.com, here are some examples of products with high markups:
- Bottled water (280,000% markup)
- Non-Generic Prescription drugs (443%)
- Prepared Coffee and Tea (200%)
- Designer clothes (100%)
- Pre-Cut Veggies/Fruit (40%)
10) Get Your Social Life on Board
Cutting back on spending so that you can save more money is a lot harder if you’re constantly asked to go out to dinners, get drinks or see shows. If you’re serious about saving, you need to get your friends on board with some of your lifestyle changes.
Tell your friends that you still want to hang out, but that you’re trying to cut back on spending. Help them brainstorm ideas that you can do together that don’t cost a lot of money — like making dinner, renting a movie or having a game night. It can be awkward to talk about money but you might be surprised at how many friends will be grateful for the opportunity to save as well.
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I hope you enjoyed these tips to turbo-charge your emergency fund. Don’t get frustrated if it takes you awhile – as long as you’re making saving a priority, you’re doing it right! What are some of your savings tips? Comment below!
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totally totally agree, emergency fund is always a good idea especially when you have unexpected expenses and you don’t hapve problem to pay them…believe me this is really really good, set realistic goal, set and follow a budget, do grocery shopping only with full stomach and you’ll discover also nice side of budget and savings!!!
Similar to your windfall section, every time I get a raise, I try to apply the additional money in my paycheck to debt or my emergency fund. I was living on that amount before so I “hide” the extra in savings. It makes a big difference quickly! I also love using “three paycheck” months to throw more at debt/savings.