We live in very uncertain times. A financial meltdown could be right around the corner, so the more money we have at our disposal in the future, the better off we’ll be.
Saving for retirement is a great idea and there are a number of different ways we can do that. But saving for the future is not enough. You also need an emergency fund you can draw upon on short notice, if necessary.
Now, it’s difficult enough for many people to save for the future. Trying to also put aside enough money to live on for a month or more – should our income suddenly dry up or an unexpected bill appear in the mail – can be a huge challenge.
The key to establishing and building an emergency fund is learning how to budget your money so you don’t have to live paycheck to paycheck. By carefully cutting expenses and finding creative ways to increase your income, there will be enough left over at the end of the month to set up and then grow an emergency fund.
Here are five action steps you can take, starting right now, that will enable you to build an emergency fund.
- Figure out where your money is going. Seems simple, but almost everybody who starts keeping track of their spending is amazed at how much they spend and where they spend it.
- Establish a budget. Determine how much you are going to spend each month on your mortgage or rent, utilities, food, phone, entertainment, etc., then write it out and follow it. Don’t forget to include savings in your formula.
- Slash expenses. From establishing your budget, you will probably see that you need to cut back on spending in order to save. That’s OK. There is probably a lot of leeway. Many people who focus on cutting expenses can save about $5,000 per year.
- Increase income. There are many ways you could earn extra cash if you really wanted to. And even if you only chose a few of them, you could increase the amount of money you could put aside for an emergency fund. If you have a fulltime job, look into adding some part-time work. Believe me, it’ll be worth it once you have that nest egg built up. Have a garage sale, teach a class, do some babysitting or make crafts you can sell. The possibilities are endless.
- Avoid debt. If you have credit cards with room on them, it’s very tempting to make purchases you would not otherwise be able to make. Don’t do it unless you absolutely have to. That $100 clothing item that looks so good in the store won’t look as good in your closet, and it could end up costing you more like $150 if you don’t pay off your balance at the end of the month.
You probably know of many other ways to save enough money to establish an emergency fund. How about sharing some of them with our readers? We’d really appreciate it.