Jun 02 2008
If you don’t have an emergency fund but would like one, remember that only you can make it happen. Unless you set money aside in a specially designated emergency account (never in your main checking account!), you’ll never have one saved. Simple as that. It takes effort and focus.
Establish a dollar amount you want to save. If it’s six months of expenses you want, you should know how much it costs for you to live per month. Add up your fixed bills, throw in how much you spend on gas, groceries, personal care, and whatever else each month, and that should give you a ballpark figure of how much you’ll need each month. Hopefully, that amount is less than your monthly income. You can inflate your savings goal by 10 percent or so to give you an extra cushion, in case you aren’t sure about your expenses.
Define what an emergency constitutes. Maybe it’s where you’d like to keep your $500 car insurance deductible, if you need to file a claim. Maybe you work from home, and earning an income means you must have a working computer, and you’d like to have money to replace it on a moment’s notice, if you needed to. Maybe you live 1,000 miles from family, and would like to be able to take the next plane out of town if someone becomes ill. Or maybe, you want to prepare for the worst and be able to pay all of your expenses for a few months in the event of a job loss.
Think about what would have to happen in your life to make you tap your emergency fund. Then, stick to it.
Talk about it! Sharing a goal with someone else makes that goal much more real. If you’re married, you’ll want to have your spouse on board with you. You don’t have to tell the world, but telling someone that you want to save three months of expenses, or $10k or $15k or whatever will help you reach that.
Pay yourself when you get each paycheck. If you feel like you can spare $50, great! Set it aside in a savings account, away from where you can easily spend it, but accessible if you need it. At the end of the pay period and right before you get another check, put the rest of the money into your savings account. Be careful not to sock away too much too fast, until you know for sure you can part with that money without being painfully pinched.
After a few pay cycles, try to increase your savings contribution. If $50 per paycheck felt really easy, see if you can make it $100 or $150 or more.
Dedicate extra money to your emergency fund. Maybe you don’t want to put 100 percent of your extra money aside. That’s fine. But how about 75 percent? Or 50 percent? You’ll reach your goal a lot faster if you throw those little windfalls into your account, rather than spending it.
Be sure your emergency fund is easily accessible and earns a decent amount of interest. Mine is in ING Direct, and I can transfer it to my ING checking account if I needed to and use my debit card. Or, I can send it back to my brick & mortar bank or send electronic checks from it. Right now, I’m earning 3 percent interest. If that rate holds the same once I’m at the $10k mark, I’ll be earning $25/month in interest!
Periodically, revisit your savings progress. Every so often, it can be helpful to look at how much you’ve saved in a particular period of time. You’ll hopefully see positive progress–and that’s worth celebrating! Seeing your goals being met can help you keep on track. If you aren’t progressing as much as you had hoped, maybe you can find areas where you can improve.
Set a goal date. Be realistic, but push yourself! You want to set yourself up for success, and if you’re too ambitious with your goal date, you could be really disappointed if you miss the mark. On the other hand, don’t say “June 2011” when realistically, it should take you 12 months.
Be patient. Don’t be discouraged if it’s taking you longer than you thought to save. Life happens. And, people have different incomes and expenses, so it isn’t good to compare yourself with others. The important thing is to make positive progress.
Do you have an emergency fund? How long did it take you to grow? What advice would you like to share?
If you don’t have and emergency fund, why?