5 Easy Steps to Jumpstart Your Emergency Fund

“Many adults are not well prepared to withstand even small financial disruptions,” writes the Federal Reserve in its 2018 Report on the Economic Well-Being of U.S. Households. When surveyed, 4 in 10 adults said they’d have trouble covering an unexpected $400 expense without carrying a credit card balance or borrowing from family/friends.

What about you—could you cover that hypothetical $400 with funds from your emergency savings?

If the answer is yes, congratulations. You’re doing the right thing when it comes to emergency funds, so just keep it up and remember to replenish whatever you withdraw.

But if you’re among the 40 percent, you need an emergency fund.

Because we all know that the $400 expense isn’t hypothetical. It’s the total cost of repairs your car needs to pass inspection. The hospital bill you get from taking your kid to the ER when she was ill all night. Whatever the reason, everyone gets hit with unexpected bills at least once a year. Instead of throwing a wrench in your monthly budget or going into debt, these expenses become anticipated unknowns when you have an emergency fund. And dealing with them is a lot less stressful.

Ready to jumpstart your emergency fund? The first step is to set a goal.

1. Choose a manageable funding goal.

Much of the research on habits and how to change them suggests people do best when they start small. For example, set a goal to lose 5 lbs. before you aim for 50. That’s why we recommend starting with an emergency fund goal, however small, that you know you can reach within one to three months. Need suggestions?

• Personal finance guru Dave Ramsey recommends starting with a $1,000 “starter emergency fund.”
• If that seems daunting on your already-shoestring budget, aim for $400 (the same amount cited in The Federal Reserve report).

Ultimately, your goal is to save at least two months’ worth of living expenses in case you lose your job. But like we said, don’t worry about that right now. Just start.

2. Choose the right savings account and put your contributions on autopilot.

The key with an emergency savings account is to make it accessible, but not too accessible. Unlike a retirement account, which you shouldn’t touch until you reach retirement age, your emergency fund is something you’ll need to dip into from time to time.

That’s why we recommend using a personal savings account you can link to your checking account. Then you can set up auto transfers every payday or on the schedule that works best for you. Putting your savings on autopilot eliminates the need for self-discipline, willpower, or simply remembering. That also makes you more likely to succeed.

3. Raise your spending awareness.

Where does your money go each month? Beyond the usual culprits such as housing, food, and utilities, you may be surprised once you start tracking. Recording and categorizing your spending is the best way to figure out where it’s going and what you might like to change.

It’s not about shaming you for buying coffee out every morning. If you value that cup of coffee, you don’t have to get rid of it. Look for places where you’re spending on things you don’t value, such as convenience food. Then you can make a deliberate effort to reduce that spending and divert the money to your savings account instead.

4. Boost your income.

Cutting expenses is one way to find extra money in your budget, but the other approach is to increase your income. If you already have a full-time job, consider getting a side hustle. For example, you could create a profile on Care.com to make money as a babysitter, dog walker, or house cleaner. If you’re handy, offer your services on Task Rabbit. Creative types can advertise copywriting, photography, and graphic design skills on freelance sites like Fiverr. Take the money you make from your side hustle and put it in your emergency fund to reach your savings goals faster.

5. Find an accountability partner.

Whether you manage your finances on your own, or you’re budgeting with a partner, saving can be more fun when an accountable person is involved. Poll your friends to see who else is working on an emergency fund. Team up to share your goals and check-in with each other. Decide on an inexpensive way to celebrate when you both reach your goals, such as getting ice cream sundaes or manicures together.

Let us help you start saving today!

At Town and Country Bank and Peoples Prosperity Bank, we understand the challenges in building and maintaining a healthy emergency fund. We can help you start with a personal savings account. As your balance grows, we have a variety of higher-balance savings accounts and investment options to keep your momentum going and earn even more from your money. Interested in additional resources to help with your savings? Town and Country Bank and Peoples Prosperity Bank offers free budgeting tools through our Online Banking platform, allowing savers to earmark emergency funds and identify where money is being spent. To learn more, contact us today or visit one of our locations nearest you.