An emergency fund should be one of your top priorities when it comes to getting on top of your finances, but how do you save one? It can be hard to put money aside and start saving for an emergency fund when money is tight, but it is essential. After all, building an emergency fund will give you peace of mind, knowing that you will be covered if something goes wrong. We can’t predict the future, but we can make sure we have some money set aside to help our future self out as best we can by saving for emergencies we don’t see coming.
A little nervous? Lost? Confused? Don’t worry. We’ve put together a step by step guide how to save for an emergency fund to help if you’re having trouble figuring out where to start.
1. Pay Yourself First
If you haven’t come across this concept before, it’s where you put money into your savings straight away, and treat it like a bill. A common mistake that lots of people make is to wait until the end of the month to put money into savings, which usually means there’s not much to put over.
Instead, set your savings for your emergency fund to go out automatically after pay day, straight into your savings account.
2. Reduce Your Spending
It may sound obvious, but there are often things that we can cut back on when we have a look through our spending. It’s always worth going through your bank statements, or tracking your expenses each day, and adding it all up to see what you are spending money on.
Then go through your expenses and see what you can cut out. The key thing to bear in mind is that building an emergency fund could only be temporary, so you could cut things out and add them back in when your emergency fund is complete.
3. Use Piggy for Everyday Savings
When you really need to buy something, it’s always helpful to find the cheapest way of doing so. If you download the Piggy extension, then you can easily find the best deals and coupons automatically at checkout, which saves so much time in your weekly shopping and, more importantly, money.
4. Earn Extra Income
When you have an emergency fund savings goal and are struggling to find any extra wiggle room in your budget, it’s time to start trying to earn some extra income. The kind of things that you can try out to make some extra income will depend on how much time you’re able to put into it. There are some things that you can do at any time, which means you should be able to easily fit them around any other commitments that you have.
Some of our best ideas of online money makers include:
- Freelance writing
- Transcribing videos
- Starting a Youtube channel
- Teaching English
- Virtual Assistant
5. Keep Your Money Somewhere It Will Grow
The easiest way to get to your goal quicker is to keep your emergency savings somewhere that will make you some extra money. A good place to start is with a High Yield Savings Account, where you should be able to get a decent amount of interest on the money that you have saved.
It’s not a good idea to put this money into investments, as if it’s for emergencies, and you may need to access it quickly!
6. Change Your Mindset
Saving for an emergency fund doesn’t sound like the most fun thing ever to do, does it? When we come up against something like this, we may not put as much effort into it as possible, or maybe even resent having to do it. It’s really important to change our mindset to knowing that this is beneficial to us.
Having an emergency fund will give you so much peace of mind, even just knowing that it’s there. It may feel like you are depriving yourself of things just to build up your emergency fund, but it’s worth remembering that it will save you from real life deprivation in the future.
7. Stop Impulse Spending
If you don’t have a firm grip on your spending, you may find yourself making some impulse purchases. Buying things spontaneously isn’t the worst thing in the world, but when you have a clear financial goal or you’re learning how to save for an emergency fund, it can prevent you from achieving what you want quickly.
This is when tracking your expenses and going over your spending comes in handy; you can go back through it and analyze why and when you succumbed to impulse spending so you can avoid doing it again. This shouldn’t be done in a way to guilt trip you, but instead serve as a way to look at what the triggers are and see what you can do instead of spending.
You can put together some rules for yourself, such as waiting for 24 hours (or longer!) before buying the thing that you have your eye on, and by leaving your credit cards at home so that you’re not tempted when you go to the mall.
8. Set Small Goals
When you have an emergency fund savings goal to reach, it can be helpful to break it down into easier to manage chunks. It can be really overwhelming to have such a huge number in front of you that you have to reach!
You can set yourself goals along the way, such as $100 per month, or whatever works best for you. Building an emergency fund should make your feel accomplished too.
9. Don’t Cut Back Too Much
Although we suggest reducing your spending, it’s really important that you don’t cut back too much. When you have a serious goal, it can be all too easy to get a bit too enthusiastic. You might decide to cut back on pretty much everything, because you get so excited to reach your emergency fund savings goal as quickly as possible.
However, this will lead you straight into feeling like you’re depriving yourself, and if you don’t have your spending under control, this is what can lead to a random impulse spending binge.
To truly learn how to save an emergency fund when money is tight, make sure you leave room in your budget for some fun things too! Maybe even give yourself a bit of money for impulse spending, if that’s something you think you need to do to reach your goal efficiently.
Figure Out How To Build An Emergency Fund in a Way that Works Best for You
Follow our steps above, improvise, trial and error, and you’ll soon be on your way to saving for an emergency fund. Don’t stress yourself out too much though, or you’ll be needing the emergency fund before you’re even halfway there.
According to our friends at The Savvy Couple, “When money is tight, we think there is absolutely no room to save money when every dollar is allocated to a monthly bill. There are a few ways to continue to save money. The first is to find ways to cut expenses for a short period of time while you are building up your emergency fund. From that morning coffee to eating out, these are all easy expenses that are not necessary. Be creative and find ways to save money for a few months while you build up your savings fund. Another way is to use a fun printable that you can hang up on your fridge or bathroom mirror to motivate you to keep saving…You will have such peace of mind when you have your emergency fund established and always be able to rely on it when an emergency occurs.”
Make your plan for saving for emergencies fit with your lifestyle, your budget, and your financial goals, and you’ll set yourself up for more financial stability when the unexpected happens.