Your Finish Rich Plan - A Personal Finance Blog

10 Tips To Jumpstart Your Emergency Savings Fund

Not having an emergency savings fund can be very costly; talk to most people about the importance of having an emergency fund for those times when “life” happens, and they’ll heartily agree with you. The fact is, though, that most people are two or three paychecks away from a financial crisis. Why the disconnect? One of the biggest obstacles to people setting up an emergency fund is that they imagine they have to start off with some huge amount. Nothing could be further from the truth. You can definitely start small and build your way up.

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I could put together a list of all the areas where you could save money that could be used to grow your retirement fund. Most likely you’d feel overwhelmed and end up not putting even one of them in practice. So instead I’m focusing on 10 tips that can help you jumpstart you emergency savings fund to at least $1,000. Past that point, the account provides the foundation, means, and motivation to implement other strategies to 1) save more money and make it grow, 2) pay off debt, and 3) invest.

Where to Start?

• Just start! Even if it’s only $25 per paycheck, JUST START. It will slowly grow each paycheck, and you will be glad to see at least a little in your savings, and will soon be motivate to try to save more. Treat it as a bill: add your emergency fund contribution to your list of bills, and pay it at the same time. Setup an automatic withdrawal from your account, or try having it withheld from your paycheck. If you don’t see it, you won’t miss it.
• Do you have a ton of things in your house that you no longer need/want? Like furniture, clothing, electronics, toys… Take them to a consignment shop, sell them on eBay or hold a garage sale. Any money you raise should go straight to your emergency fund.
• A $1,200 tax refund means that not only are you giving Uncle Sam an interest-free loan, you’re also depriving yourself of $100 a month. Adjust your withholding allowances so that you’re keeping an appropriate amount of money for yourself each month. Put that extra money in your emergency fund. Update: Growing Money wrote an excellent post on the concept, titled “Make More Money With The Same Paycheck“. Definitely worth reading!
  

Tax Returns, Rebates, and Other Windfalls

• If you haven’t received your tax return yet, or haven’t taken a loan against it, that’s a good place to start. While we’re on the subject, the stimulus tax rebate checks start arriving in May. Middle income individuals with no dependents should get about $600. A middle income family of four will get about $1,670, according to the Treasury Department. Resist the urge to splurge!
• Use any windfall that comes your way to pad your emergency fund, especially a performance or Christmas bonus check or unexpected cash prize. Similarly, after shopping, apply for and track any available rebates and stash those checks!
  

Everyday Expenses

• Round up to the nearest dollar (tip from Get Rich Slowly). Keep track of every expense but round it up to the nearest dollar when recording it. So if you spend $14.05, enter it as $15. Over the course of a month, you will have a nice “excess” in your checking account, which you can rollover into your emergency fund.
• Save your change. Don’t spend any coins you get. When you get home at the end of the day, empty out your pockets into a jar, and once a month, go to the bank and put it into savings. This tip and the previous one combine for a nice one-two punch. Not only is that $14.05 purchase recorded as $15 (for a $0.95 savings), but that $0.95 goes into the jar, to be deposited into your savings.
• Quit smoking or drinking. Even if you don’t quit, try cutting back. Take your daily savings and throw them into the jar.
• Bring your own lunch as often as you can. You will save roughly $5-$7 every time you do. Do I have to say that those savings go into the jar?

Generate Extra Income

• Do you have any skills that can potentially bring you money? Market them as a freelancer. You could also get a second job on the side (maybe every other weekend). Take the extra income and save it.

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As I said in a previous post about being frugal, I’m not a particularly frugal person, nor am I very patient. I couldn’t grow an emergency fund $5 or $10 at a time. I have to see it grow rapidly (at least at the beginning) before I can commit to contributing to it regularly.

Besides the quit drinking and/or smoking tip, there’s nothing life-altering about those suggestions. That was a deliberate choice on my part. These tips will help you build that nest egg within a couple of months without fundamentally changing your lifestyle. Once that is taken care of, though, that emergency fund will in turn allow for many more money-saving opportunities.

But that is another personal finance post…

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