You may be reading this because you are thinking about ways to bulk up your emergency cash balance. It could also be that you have no savings at all and want to make some changes to give yourself some financial peace of mind. Either way, you've come to the right place so keep reading.
According to a recent study, 69% of Americans have less than $1,000 in savings. If you fall into that group, it's time to change that. While it can be difficult to save sometimes, having emergency cash can be the difference between having enough to get by vs. facing true financial hardship.
If you are just starting to build an emergency fund, it might be a bit overwhelming to hear constant talk of saving at least 3 to 6 months of your living expenses. Just thinking about the idea alone can make someone who's just getting started feel discouraged.
However, you can totally save money and have a fully-funded emergency cash account. You just need to adjust your mindset to believe you can and then, follow the right approach to saving money.
Here are 5 key tips that can make all the difference.
1. Open a dedicated emergency cash account; even if you can't fund it yet
When it comes to saving money, it's important that you adjust your mindset and set the intention to save. Even if you don't have the cash to put aside right now, setting the intention means you are actively thinking about it. And when you are actively thinking about something, you are more likely to take action to achieve it.
One thing you can do to keep your emergency cash savings goal top of mind is to open a dedicated savings account for it (we are big fans of this one from Chime). By taking the action to open the account, you are setting the intention to save regardless of whether you have the money right now or not.
This way, when you do get that spare money to save, you already have a designated place to put it. Otherwise what typically happens, is that because the intention has not been set, the money conveniently finds ways to slip through your fingers.
2. Build into your savings plan into your budget
Once your account is open, your next action step is to create a savings strategy. This strategy involves budgeting and building your plans to save into your budget.
Essentially, once you lay out your various budgeting categories, one of the line items in your budget should be "emergency cash". Doing this will help you determine how much you can realistically put aside each time you get paid in order to fund your savings accounts.
Working on a variable income? You can still budget and you can still save.
You'd just need to create a plan for what you earn before you spend it so it doesn't slip through your fingers. You can come up with a list of baseline costs for your recurring expenses by looking at your last 3 to 6 months of those expenses. Then, take the average amount you spend and add it to your budget. Given these averages, you can then come up with an amount of money you are able to save.
3. Start with what you have, no matter how small
So let's say after you are done with your budget for the month you only have a little bit of money left to save. Is it still worth saving such a tiny amount? The answer is a resounding, YES! Even if you can only save a dollar, that's still, money.
Starting small, and making the effort to save no matter how little means that you are making the effort, staying intentional and keeping your mind focused on your long term savings goal. It might not seem like it now but over time, those small amounts will add up. A little plus a little, plus a little, equals a lot.
4. Focus on building habit and consistency
What's most important in the early stages of building up your savings, is that you develop the habit to save money consistently.
There's this idea that you need to wait until you are earning more money to save and it's absolutely wrong. There are so many people who make tons of money and save nothing because they have not built the discipline or established the habit of savings. If you ask them, despite their high incomes, they'll tell you they don't have enough to save. Why? Well, in many instances they've allowed their lifestyle expenses to take priority over their financial goals.
By doing what you can with what you have, you can develop the habit and consistency around saving money. In turn, as your income increases, you'll be used to saving money and will be able to save even more money over time.
5. Ramp up on saving more emergency money when your financial situation improves
Now you laid the foundation to save consistently and so once you start earning more or your financial situation improves, you'll be able to pick up the pace easily. It's a good idea to adjust the savings amounts in your budget when you start to earn more money. This way you have a plan for every dollar and can put more money towards your emergency cash savings,
Don't put off adjusting your plan until later because when you have money sitting around with no purpose, it's easy for you to overspend on things you may not even remember later.
Ready to start saving? Get started by taking the first step! You'll be surprised at how much progress you'll make in a short amount of time.