Life rarely goes as planned, so it’s important to prepare for those moments when you need additional financial cushion. Establishing an emergency savings fund is essential to your financial health. An unexpected illness, job loss, or home repair could cause significant financial distress if you’re unprepared.
Saving money on a regular basis requires a great deal of discipline. However, the key is to rethink the way you approach building your rainy day fund. Instead of thinking of all the things you’ll be giving up, think of the fact that you’ll be preparing yourself for the unexpected. Having peace of mind is worth the temporary discomfort you may experience when you start tightening your budget.
1. Set small savings goals
Financial planners generally recommend saving between 10% and 15% of your income and having roughly three to six months of expenses in reserve (others recommend six to 12 months). However, if you are not able to save that amount each pay period, get into the habit of socking away whatever you can. Even if you can only save $10 or $20 each week, set it aside. This way, once your financial situation improves, you’ll already be in the savings habit. In the meantime, practice frugal habits and watch your money grow. J.D. Roth, founder of Get Rich Slowly, advises against setting unrealistic savings goals so that you don’t get discouraged. Roth says it’s important to remember that it’s the small steps that will help you build wealth.
“Part of the problem is that we live in a society that idolizes the Big Winner,” he said. “Nobody celebrates the guy next door who bikes to work, grows his own food and cooks his own meals, shops at the thrift store, and gets all his books from the library. That sort of life isn’t glitzy. Yet it’s that sort of life that can (and does) lead to true wealth.”
2. Set up automatic savings
If you have trouble getting into the savings habit, have a portion of your paycheck automatically transferred to your savings account as soon as you get paid. If impulse spending is a concern, consider establishing an online savings account that is not directly connected to your checking so it will take a bit more effort to withdraw funds. This may help reduce the urge to withdraw money for unnecessary purchases.
“Over time, these automatic deposits add up. Fifty dollars a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded. Soon you will be able to cover many unexpected expenses without putting them on your credit card or taking out a high-cost loan. If you can’t afford to save even $50 a month, there are alternatives. Many banks and credit unions will transfer as little as $25 monthly from checking to savings and, as an added bonus, waive any monthly savings fees,” notes America Saves.
3. Start a savings club
Gather a group of friends who are also attempting to pump up their nest egg. Meet at least once a month to review savings goals and cheer each other on when a target is met. One way to keep track of savings as a group is to use a savings app. One app to try is Qapital, which allows a group to create and track shared goals.