Sense & Centsibility Blog

6 Steps to Build Up Your Emergency Fund

emergency fundSaving money can be hard! We all know we should do it, and some of us actually do. Even when we do save, we know we should be saving more.

So, what’s a poor girl (or guy) to do?

Emergency savings should be a high priority on our list of savings goals. Struggling paycheck to paycheck is surely no fun. And, it only gets harder if you have no safety net for life’s little bumps.

Experts recommend saving from 3 to 6 months of your monthly household expenses in case of job loss or other crisis.

The problem is, it can literally take years to achieve this goal. Just like saving for retirement or a child’s college education, saving can take an excruciatingly long time. And unfortunately, the longer something takes to complete, it may prevent us from getting started at all.

Instead of focusing on the big picture, let's break down the process into smaller steps that can easily be accomplished in a short amount of time.

Step 1

Open a savings account at a local bank or credit union. You can also visit online banks which may offer better interest rates since there is less overhead than a brick and mortar operation. A word of caution is needed here.

Before setting up an internet banking account, do your homework to learn about potential pitfalls and ways to keep your money safe. Visit the FDIC for a primer on internet banking. rates online banks and reviews several variables, in addition to the interest rate.

Obviously, how much interest you earn is important, but make sure that the other features offered suit your needs.

Step 2

Make your savings automatic. Talk with your payroll or human resources department about setting up automatic deposits into your savings account each paycheck. Designate a certain amount that you know is affordable.

Don’t reach for the moon or your plan will quickly implode! Even $20 a month helps to establish a positive saving habit and the discipline needed to help you reach your goals.

If your employer does not automatically deposit your paychecks, take the initiative to transfer cash from your checking account to your savings as soon as you get paid. That way you won’t miss the money. Even more important, you won’t spend it on something else before the money is moved.

Step 3

Leave your savings account alone unless you have a true emergency. If you withdraw your deposits on a regular basis, it will take forever to make any progress. That will likely lead to disappointment which may prompt you to abandon the whole plan altogether. So, do not sabotage yourself!

Step 4

Use extra funds to boost your emergency fund. Use cash windfalls like tax refunds, extra paychecks, pay raises, cash gifts, rebates, and so forth to add to your savings account and help reach your target amount more quickly. 

Save a portion of each windfall, but also splurge a little on yourself or family. We all can use a reward when we do the right thing! If you can’t trust yourself to save part of your tax refund, adjust your tax withholdings to minimize your tax refund and maximize the money in your paychecks.

Then, dedicate the extra money to your automatic savings. Talk with your tax advisor or visit the IRS website to calculate the correct withholding amount so you don’t owe taxes at the end of the year.

Step 5

Assess your saving rate every few months by asking yourself: “Can I be saving more?”

If the answer is yes, increase your automatic deposits — even if it is just $5 a paycheck. Every little bit will help and you can take pride in the advances you have made.

Step 6

Look at other ways to increase savings. Clean out your closets and basement and have an old fashioned garage sale. Or, sell unused items on eBay or craigslist.

Another option to find more cash is to cut back on luxury items like pay TV, entertainment, or dining out. Allocate the proceeds to your savings account and watch the balance grow!

The only way to build an emergency fund is to start — whether small or big — and every little bit helps.

So good luck and happy saving! LSS Financial Counseling serves everyone. If you’d like free, confidential help with tools or financial coaching, give us a call at 888.577.2227 or START ONLINE COUNSELING NOW. We’d love to hear from you.

Author Barb Miller is a Certified Financial Counselor with LSS and specializes in Bankruptcy Counseling and Education.