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By Katie Levene
An emergency fund helps you sleep better at night, knowing that thousands of Washingtons are ready to keep you safe if something unexpected were to arise.
It’s there for you if you lose your job, have an unexpected insurance bill or if your car breaks down. A well-stocked emergency fund helps you avoid taking on debt (like charging up your credit card) and will allow you to pay your bills, which keeps your credit score in a good spot.
Despite knowing this, many of us haven’t saved enough – possibly because it’s a daunting task that can take time. However, it’s important to get started as soon as possible and it can be done quickly.
“The most important thing for consumers to do right now is to build a 12-month emergency fund,” says Chris Moore, Alliant’s director of deposit and payment product strategy. “12 months is above what many experts used to recommend. However, after just passing the one-year mark of the pandemic-related shutdown, those same experts are now recommending a full year of emergency savings.”
The best way to protect yourself from life’s unplanned expenses is to quickly build an emergency fund. So, let’s get excited and focused! Here’s how to build an emergency fund fast.
Building an emergency fund often involves “finding money” and then saving that cash each month. Here are some ways to save money for your emergency savings account:
Cut your wants. You’ll need a strict budget to maximize your savings. Take a look at your past spending in the following categories and see if you can cut your spending in half:
Negotiate your recurring bills. It might involve some long phone calls but getting your insurance company or internet provider on the phone could cut your monthly expenses. Take a look at your following bills:
We have a six-month plan to cut expenses but you want to cut costs in hyperdrive. If you’re having trouble cutting out some of the things you love, tell yourself it’s temporary.
Once you’ve reached your goal, you can reintroduce the things you’ve been missing most. But, you might find that you don’t miss some of your “must have” items as much as you thought.
Another method to quickly build your emergency fund is to earn more. Here are some ideas to get you started!
Get a side-hustle and work for some extra cash. Freelance your expertise, become a virtual assistant, tutor or pet sit! There are so many side-hustle options if you get creative. The key is to invest little to no money in the new gig. Do something that you can start tomorrow and save everything.
Sell household items. You have money just sitting in your house and selling your items is now easier than ever. Try some online options, second-hand shops or a traditional garage sale. Large ticket items like gym equipment and furniture will make the biggest difference, but don’t stop there.
Clean out your closets, the garage and those kitchen gadgets collecting dust. Every dollar you get for those items should go directly to your savings account.
Save bonus money. If you get a tax refund, stimulus check, bonus or birthday check, put it toward your savings account. These added windfalls can add up quickly, giving your savings account an immediate boost!
“Your emergency savings mustn’t be in an investment account but in an accessible high-yield savings account. The purpose is not for your money to grow exponentially but for it to be there, in full, when you need it,” says Moore.
Online savings accounts tend to offer the highest rates on savings accounts. Every dollar counts and your hard-earned cash deserves an interest rate boost but it also needs to be available. Look for a savings account with a high APY. (Note: a checking account offers readily available funds but usually collects very little interest.)
Remember: your emergency fund is there to protect you. It’s not if something unexpected will happen, it’s when. And, when it happens, you’ll want to be able to transfer the funds as soon as possible.
“Building an emergency fund can be gradual. Set up recurring weekly or monthly deposits into your emergency account so you can easily build the habit of saving,” says Moore.
After step one (reduce expenses), you should have a few hundred dollars of savings each month. Reach your financial goals more easily by automatically transferring money to your account.
Even better: Pay yourself first by directly depositing a portion of your paycheck into your savings account!
It can be tempting to dip into your account for non-emergencies. To ensure that you’re using it properly, ask yourself, was this unexpected and do I need this money now? If the answer is no, either hold off on the purchase or pay for it with another account.
You can set up multiple savings accounts for each of your savings goals. So, if you want to take a big vacation, save for that in a vacation fund. That way you won’t dip into your emergency savings.
Quickly building an emergency fund requires determination and focus. You may have to say no to a few things while you're building your savings but it will be worth it! According to a recent PWC survey, people with an emergency fund are significantly less stressed about their finances.
If you’re having trouble staying on track, try creating a zero-sum budget so you can track every dollar in and out. You can also turn to friends and family who have gone through this process before. Ask for advice and emotional support. It’s easier to accomplish any goal with a team behind you. Good luck!
Check out these articles for more saving tips:
Katie Levene is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.
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