saving money

How to build an emergency fund


Sometimes life gives us a bowl of cherries that’s mostly pits. It happens. The furnace decides to quit working a week before Christmas. The car needs a new transmission just when your first child is starting college. Unexpected expenses creep up on us when we least want to see them. An emergency fund is a critical necessity for managing these unplanned costs without having to tap into credit, retirement funds or forgoing the emergency. Sometimes building up an emergency fund is as simple as taking your brain out of the savings process. Auto deposits into a savings account are a reliable way to do just this.

Do you eat lunch out once a week? Stop for a fancy coffee on your way to work? Or do some other regular transaction that costs you what seems like a trivial amount of money on a regular basis? There’s your money for the emergency fund. You take your brain out of it by setting up an auto deposit from your check or checking account into your savings account on a weekly, biweekly or monthly basis. It can be an amount as low as $10 or $20 a week, which is less than $3 a day. That’s probably less than you pay for the daily coffee out. Skip the lunch out once a week and take a PB&J and there’s your savings donation. Depositing $20 a week for a year equals $1,040 at the end of the year. That’s a start on an emergency fund.

Sometimes the best way to start saving is to start small and then make gradual increases to the amount to see just how much you can afford to sock away. Your $20 a week might jump to $40 a week as you find you can afford just a bit more diverted into savings. The point is to start somewhere. When you put it on autopilot with an auto deposit, you take the thinking out of whether you should make a deposit this week or that week. Not sure how to set up an auto deposit? Ask a teller at your bank.

Practical Steps to Starting an Emergency Fund:

  1. Set up a Savings Account where you already have your checking and then set up an automatic deposit to move $100 a month into your Savings Account. At the end of one year, you’ll have saved $1200.
  2. Keep an actual piggy bank for spare change. We regularly take our jar of change to the bank’s free change machine and turn it into cold hard bills. It’s amazing how a little spare change adds up. Have the teller deposit your spare change directly into your Savings Account.
  3. Deploy some Mr. Money Mustache frugality. Make your coffee at home. Pack a lunch. Skip the beer or wine once a week. Ditch cable. Cook 3 more meals a week at home from scratch. These changes could net you anywhere from $10 to $70 a week if you do them all.
  4. Reevaluate your contribution monthly to assess whether you can increase how much you’re saving. Often times, you realize you can afford to save more once you start. Another $40 a month will add $480 in a year.
  5. Keep going after year one to really build an emergency fund that will sustain you through more serious bumps in the road. Don’t stop contributing to your savings just because you’ve got a little cash in the bank. Keep saving and challenge yourself to add to it on an annual basis.

Ultimately, an emergency fund is there to give you peace of mind for those unexpected expenses life throws at you. You just might find you enjoy saving as you see your balance grow each month.

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