Though many of us will face a significant unexpected expense at some point during our lives, more than half of Americans don’t have the cash or savings on hand* to cover a financial emergency requiring $1,000 or more to resolve.
Far too often this means a car repair, necessary surgery, appliance failure, or any number of other expenses can force people in already precarious financial situations to turn to high-interest credit cards, payday loans or other forms of borrowing — which can set them even further behind.
The good news? Building an emergency fund is more doable than you may think. It just takes a little extra planning and strategy.
Here’s how to get started.
Many experts recommend working toward setting aside enough to cover three to six months’ worth of expenses. That’s a good long-term goal — likely enough to tide you over in case of a major emergency — but it’s OK to start small.
At first, simply aim to save $1,000. If you set up an automatic deposit to your savings account of $25 each week, you’ll have $100 set aside after a month, and $1,000 after just 10 months.
Celebrate each milestone — saving $100, $500, $1,000. After you’ve reached that goal, set another. Maintain your savings habit and your emergency fund — not to mention your peace of mind — may grow faster than you expect.
If you’re currently spending a lot of your monthly income on debt payments, work to pay down your debt so you can free up more of your income for savings.
Also look for ways to cut expenses. It’s important to remember as you do this that it’s not about completely abandoning the things you love, but, rather, being more strategic in your outlays. If, for example, you spend a lot of money dining out, try to transform those restaurant visits or takeout orders from a habit to an occasional special treat. Or cut out subscriptions or memberships you can live without and bank the savings. Clip coupons and shop at secondhand stores to save even more.
Automate your savings and deposit money straight from your paycheck into your bank account. By taking the effort out of the process you’ll be more likely to stick to — and achieve — your financial goals.
Commit to using the money in your emergency fund only for real emergencies. If you’re dipping into it for a new pair of shoes or to pay a monthly bill, it’s not really an emergency account.
Life is full of twists and turns. The key is how you navigate them. The sooner you establish and grow your own nest egg in the bank, the sooner you’ll have the resources on hand to navigate your way around those unexpected bumps in the road while driving toward making your short- and long-term goals a reality.