Tips for Building Your Emergency Fund

We all know that we need to have at least six months to a year’s worth of salary saved up in the savings kitty, should the unexpected like a job loss or illness happen. No matter how important we know a healthy savings balance is for the welfare of our family, many tend to avoid this requirement simply because they either think they will never need it, or just because they think they cannot possibly afford to save. In a time when unemployment is at an all time high, building the balance in your savings should be as important to you as breathing. Here are some simple yet effective tips to building your emergency fund no matter what situation you are in.

First, try your best to stay out of debt. One of the biggest culprits of a shrinking emergency fund balance is your credit card debt. When you make purchases using your credit card and carry a balance over to the next month, the interest on even a small balance can potentially take all the money you have left in your pocket. Paying interest for money that was probably used to buy something you no longer have, like food, is a major roadblock to your emergency fund goals. Avoid all unnecessary debt and you will be able to build the balance in your emergency fund quicker than you may have thought was possible.

Second, make your savings automatic. One of the easiest and most effective ways to save money is to schedule an automatic withdrawal out of your paycheck every week. When the process is done for you, you are less likely to come up with excuses as to why you can’t deposit the money that week. After awhile you will probably not even miss the money that is being taken out of your check each and every week. Just don’t think that you need to start saving by dedicating a large amount of your pay to your emergency fund each week; start with what you can afford. You can even start with something as small as $10 or $20 a week if that is all you can currently afford. Just as long as the withdrawal is scheduled, your emergency fund will start to grow no matter how much you can contribute to it each week.

Third, create a budget if you do not already have one. If you are constantly feeling like you are strapped for cash, and your bills never seem to end, odds are you may be thinking that you do not have enough free cash to devote to building an emergency fund. This is why you need to create a budget. When you write down everything you spend in a month, you can easily identify the expenses that need to be kept from the ones that can be eliminated. Something as simple as eliminating your daily trip to the coffee shop can end up saving you anywhere from $10 to $20 a week which is easily enough to get your emergency fund started. When you finally take the time to do a serious analysis of how much money you spend in a month you may quickly find the frivolous expenses that you never even realized were there, allowing you to free up more cash than you ever thought was possible.

Lastly, treat a raise or any other financial bonus as if it never even happened. This can be one of the most difficult things to accomplish. The thought of all the extra cash that a raise or even a bonus can bring ends up making most people think of all the extra stuff they can buy with the money instead of worrying about their financial stability. Instead of spending the extra money on something you may forget about in six months, take that money and put it in your emergency fund. Treat it as if it doesn’t even exist. By this point you should already be accustomed to living on your current salary so you should not need any extra cash in order to make ends meet. Funnel all the excess into your emergency fund and it will be there for you when you need it most.