Take the Steps to Build Your Emergency “Rainy Day” Fund
You’ve heard it said: “save for a rainy day.” Most of us have probably heard it endlessly repeated from our parents. But there’s something to be said for having an emergency or rainy day fund. You just never know.
So how can you find enough spare cash in your budget to set aside for a rainy day? If you’re living paycheck to paycheck, the thought of saving up enough money to cover the generally recommended six months’ worth of expenses is especially daunting. The good news: you don’t have to stash all of the cash at once.
Start setting aside a little each month to build your emergency fund. It doesn’t require a big salary. Saving is a function of discipline, not income.
Here are six steps to help guide you on how to create an emergency fund:
- Save – don’t spend – your tax refund. About 75 percent of taxpayers received a refund last year, and the average amount was close to $3,000. A refund of that size can get your emergency fund off to a great start.
- Find ways to cut back. There’s probably more spare cash for an emergency fund in your budget than you realize. Closely track your spending and find new ways to cut back. Sort your wants from your needs.
- If you’ve already cut back as much as you can to make ends meet or want to save even more, look for ways to earn more money. A second job can be one solution.
- Set a goal and monitor your success. Sign up to receive account balance e-mails from your bank. Those regular reminders can encourage you to keep stashing more cash to reach your goal.
- Create competition. Consider enlisting the help of your spouse, relative or friend. See who can cut their spending and set aside the most each month. Imagine the amount you and your significant other can save if you’re both regularly stashing cash in your emergency fund.
- Toss spare change in a jar. Every little bit helps.
In the end, the place to put your emergency savings is in a savings or money-market account. The interest rates on these accounts are not high now, but your principal will be safe and you’ll be able to access your money at a moment’s notice.
After you have figured out how to create your emergency fund, you may still have questions about more efficient ways to manage your money. Feel free to contact us for financial management advice.