How to Save for an Emergency
One in three American families have no savings at all, leaving them woefully unprepared for unexpected financial costs, according to a recent study from The Pew Charitable Trusts. The study also revealed that 41 percent of households didn't have enough liquid savings to cover even a $2,000 financial shock, even with incomes of more than $85,000 per year.
None of us think we'll be on the receiving end of a life-changing financial crisis, but the reality is, we're all at risk of experiencing out-of-the-blue emergency situations such as: job loss, medical bills, or car problems—they can happen to anyone, at any time.
Here are five tips on how to save money for an emergency, fast:
1. Streamline your current spending.
Take a good, hard look at your money management, and decide which expenses are critical—and which can be cut. If tracking by pen and paper is a bit too overwhelming for you, try using a budget planner service like Mint.com to analyze your spending and visualize where you can save a buck or two to put toward an emergency fund.
2. Calculate how much you'll need to save for the future.
Once you've outlined essential expenses like rent, food, and bills, you can calculate just how much you'll need to save to cover the basics. Experts say you should save enough for at least 3-6 months of expenses, but this varies based on factors like marriage, children, job opportunities, etc. Tools like HelloWallet can help you calculate the right savings goal for your lifestyle.
3. Really commit to putting money away.
As with many things, saving money is easier said than done. Think of saving as "paying yourself first." To counter the temptation to spend, U.S. News & World Report recommends setting up automatic deposits into your savings account—just make sure you receive a reminder via email or text.
4. Find an additional source of income.
If you don't have enough money to put aside from your primary job, try looking for extra ways to earn. Have a car? Give Uber or Lyft rides when you're not working. Have a great apartment or home with an extra room? Rent it out on Airbnb. Have a special skill? Use sites like Upwork to snag freelance work. While today's technology provides plenty of options to make money, there are always the traditional methods, like babysitting, garage sales, etc.
5. Most importantly: hands off!
Set up your emergency fund in a different bank account from your everyday checking account. There's no point in putting money away if you're going to dip in every time a new expense appears. It's called an "emergency fund" for a reason, and should only be used in dire cases.
By taking small steps to put money away today, you can make sure you're prepared to cover big financial shocks in the future—without having to rack up sudden debt on your credit card. In fact, when you manage your money smartly, a credit card can be your ally. Use a rewards credit card on daily purchases, and sock away the reward amount into your emergency fund.