How to Build an Emergency Buffer
No matter what your credit score is like, keeping an emergency fund on hand is a great way to avoid the stress and hassle of figuring out how to pay for a financial surprise. Instead, you have the peace of mind knowing that you have a nest egg set aside to cover that unexpected car repair or hospital visit.
Not sure how to afford an emergency savings account? Here are a few easy ways to get started.
Set a Savings Goal
Before you do anything, think about how much you’d like to save over what period of time. If skip this step, you risk losing momentum because you’re not working towards any specific goal. Be aggressive but also don’t set yourself up for failure. While you should definitely have a final goal, such as saving $1,000 in six months, also break that down into manageable milestones. Give yourself a smaller monthly goal so you can better track your progress. Additionally, play with a savings calculator to figure out longer term goals. For example, to save $5,000 over two years, you would need to save about $208 each month.
Pare Down Your Budget
In order to build that emergency buffer, you need to divert some of your monthly income into a savings account. Put this money into a separate savings account so you don’t end up spending it. To really avoid the temptation, use a different bank so the funds aren’t easy to access. Shop around for high interest accounts so you can earn a little more to your savings. Also challenge yourself to find creative ways to cut back your expenses each month. For most people, food and groceries is one of the easiest categories to adjust. Limit how often you eat out and implement a simple dinner night at least once a week, such as spaghetti with vegetables or a peanut butter sandwich with a basic salad. Also look at how you can reduce other large budget items, such as your cell phone bill.
Get a Side Hustle
Regardless of your day job, think of creative ways you can earn more money on the side. Then put all of that extra money directly into your emergency savings account so you’re not tempted to spend it. So what kind of side hustle should you get? If you work an hourly job, consider getting an extra shift. Or look for easy online gigs you can do from the comfort of your own home on websites like Fiverr. At the very least, you can sell some extra stuff on Craigslist or host a yard sale to earn a few extra bucks. Every little bit helps when you’re building an emergency fund, so don’t scoff at side gigs that may only pay a small amount at first.
Put Aside Your Tax Refund
When tax season rolls around, you may be lucky enough to get a tax refund. If you do, don’t be tempted to spend the whole thing. Depending on your situation, you could easily put all or most of that refund into your emergency savings account and be close to your goal, if not reach it entirely. After all, the average American’s tax refund is over $3,000. You don’t need much more inspiration than that to get your taxes done in the new year!
Creating an emergency fund helps you in so many ways. You won’t dread the next financial hiccup you face and you can also avoid racking up high-interest debt. Make a plan today and you’ll be one step closer to achieving this worthy goal.
Lauren Ward
Writer and editor
Specializing in original, well-researched web content, including blog posts, news articles and web copy. Areas of expertise include personal finance and lending. 10 years of experience as freelance writer and working at Federal Reserve Bank of Richmond.
Read more about us »
