It’s time to stop thinking of an emergency fund as a luxury.
Unexpected expenses pop up all the time. They’re the rule, not the exception. What’s rare is to never get sick, never have something break down, or never have to drop everything to help a family member in need.
According to a GoBankingRates.com survey, 55% of Americans don’t have enough money set aside to cover six months of living expenses if they lost their job. Fifty-four percent say they can’t cover medical expenses and 42% can’t even cover emergency car repairs.
A Bankrate.com study found that four out of 10 Americans don’t even have $1,000 in savings for unexpected expenses. Most would have to charge them to their credit card.
Even more concerning is that according to Bankrate.com, of those households who said they had an unexpected expense, the costs ranged from $2,500 to as much as $5,000.
Just the idea of an emergency savings account can sometimes feel overwhelming for most people. It’s hard to put ourselves first, but experts say the key to building emergency savings is to remember every little bit helps. Don’t focus on the big goal of six months of living expenses. Instead, set small goals like $100 at first, then $500, then $1,000.
Here are some tips on how you can start building an emergency fund.
Set up automated payments to yourself: This strategy utilizes the “out of sight, out of mind” concept. You can’t miss or spend what’s already been transferred. Even if you set it up to only have $20 out of every paycheck automatically transferred to a savings account, you’ll have more than $500 saved in one year.
Round up your change: Gather and store any change you get back from cash purchases in a jar. Make a deposit every time it fills up. There are also some “keep the change” apps, like Acorns, that round up your everyday debit card purchases to the nearest dollar amount and automatically transfers the difference (change) to a savings account.
Tap your cash windfalls: Instead of spending all of your tax refund, set some of it aside to jump-start your emergency cash fund. The same rule applies for any bonuses or unexpected cash gifts.