You woke up to your roof leaking right over your laptop. You blew a tire on the way to work. And you’re pretty sure you heard your boss talk about “downsizing” earlier.
When it rains, it pours. Are you financially prepared? The Federal Reserve recently found that just 53% of people surveyed could cover a hypothetical emergency expense costing $400 without selling something or borrowing money.
Having an emergency fund can help you afford urgent, unavoidable expenses without draining your savings or going into debt. Below, learn some ways you can boost your emergency fund and be better financially prepared for whatever life throws at you next.
Emergency fund pro tips:
Set a reasonable goal
Some experts recommend keeping six to eight months of living expenses on hand. That’s a great goal – but it can also be intimidating. If you’re just starting out, aim for a more attainable emergency fund amount, like $200. You’ll feel accomplished earlier and be more motivated to keep adding money to your emergency fund.
Don’t stop saving
Remember, your emergency fund is different from your savings. An emergency fund is there to help you cover sudden costs. Your savings is money you put aside for planned expenses or goals, like a new car or a vacation. It’s important to continue building both of these funds.
Every little bit helps
After monthly expenses and savings, you might not have much to put into your emergency fund. That’s OK! Save what you can, when you can. Try skipping one indulgence a week: forgo a morning coffee run or bring your lunch to work. Put the few saved dollars into your emergency fund and watch it grow over time.
Build it into your budget
As you create your budget, look for little ways to save. Try cutting $5-$10 from a few non-fixed expenses categories, such as clothing, entertainment and groceries. Use that amount to create an “emergency fund” category in your budget.
Set it and forget it
Make saving for your emergency fund automatic. Talk to your bank or adjust settings on your accounts to transfer a small percentage of your income into your emergency fund. You may also consider downloading a money saving app to your smart phone. Be sure to thoroughly research the app before downloading and entering your information.
Break (only) in case of emergency
It can be tempting to dip into your emergency fund now and then, but don’t! Sure, you could pull out $100 or so to fund your next road trip, but you’ll really miss that money if you suddenly break down or run into other issues. Commit to letting your emergency fund grow and only take out money for true emergencies.
It’s hard to predict disaster, but careful spending and saving can help you be prepared and recover quickly. Learn more ways budgeting can help you reach your goals and live the life you want.
By Brooke Howell, GM Financial
GM Financial’s Brooke Howell is a writer specializing in financial literacy and a lifetime Chevrolet driver. She is red-haired, well-read and her fuel tank is always more than half full.