Tips to build your emergency savings
Many experts recommend to have at least 3-6 months of an emergency savings “cushion”, and some go as far as to recommend 6-12 months. As we’re seeing with the recent Covid-19 pandemic, this seems to be sound advice.
Now I do realize that this is a tough time for many, and that NOW may not be an ideal time to be thinking about how to put money away. But there are small things you can do to get started to build an emergency fund. Some you’ll be able to do right way, others you might have to defer to a later date. The following are ideas gathered from many different sources to help you get on your way!
- Get started TODAY with anything you can save–even $5.00. One recommendation is to “pay yourself first” by having money from your paycheck automatically deposited into a savings vehicle of some sort (savings, money market, even an interest-bearing checking). But the idea here to put the money somewhere it won’t be easily accessible (in other words, make it difficult to just transfer money from it to your everyday checking). There are many ways to make the money grow, and look for a savings vehicle with a decent interest rate, pays compound interest (which basically means that interest is not just paid on the money you put in, but also the interest you earn–it’s interest on your interest!). And while you’re paying yourself first, look at whether you’re also doing this for longer-term savings goals, such as retirement or saving for your kids’ college.
- Know what you spend each month. This includes your fixed expenses (rent, mortgage, phone bill, etc.) and your variable spending that changes each month (groceries, gas/auto, etc.). FitFin has a place to help you with both of these areas, because we have both fixed costs and a variable spending sections. And the best part is that they work together inside of the app to give you a better picture of your money.
- Now use the data from Step 2 to figure out how much you need to save for your emergency fund. This is where things can get overwhelming because it’s going to be a big number. But don’t freak out . . . instead, break it down into smaller goals. Maybe your first goal is to get one month saved, or even a week. Once you start to see the money grow, it will show you that what you’re doing is not impossible. Obviously, the more you can save each month, the quicker you’ll reach your goal. Once you get into a groove, determine how long it will take to reach your goal and adjust accordingly. Try to be realistic, but also be aggressive in the amount you save. You can do it!
- Once you’ve established your monthly expenses, figure out where you can make cuts to your spending. Do you really need three music streaming services? Do you even listen to any of them? Even take a look at what you buy when you grocery shop. How many of those things can you cut? FitFin breaks down your receipts to the product level, so you can see exactly where your money went (not just that you spent $100.00 at the store, but that you spend $7.99 on soda, etc.). You can even sort this by the number of times you’ve purchased products–maybe you had no idea you bought powdered donuts that many times (not judging because powdered donuts are delicious). Use this data to make cuts. Then look for other areas where you can cut. Do you buy a $5 coffee every day? Maybe cut back to every other day. You’ll be shocked at how much money you bleed every day/week/month!
- Once you get in the groove, set aside a quarterly “Money Day” where you and anyone else who makes money decisions with you sit down and go over everything. Is your emergency fund growing? Are you able to pay your bills and have money left over to live? If not, review where changes need to be made. Again, look at your day-to-day spending habits and make changes. This should be an ongoing process that’s part of your routine, not a one-and-done.
We hope these tips are helpful. This is as much an art as it is a science, but knowing your numbers of what you spend is a great first step. If you’re not tracking those numbers, consider using FitFin to help you find your numbers.
Best of luck and stay healthy and safe!
-Rick from FitFin