Nearly six in 10 Americans do not have enough savings to cover a $500 to $1,000 unplanned expense, according to a report from Bankrate and reported on by CNN Money. That makes an emergency savings plan a very important thing for you and your family.
When I hear a statistic like this, I am not at all surprised. At one time, I was one of the six!
Now the article affirms that the number with the ability to meet these unexpected costs are improving, and that is encouraging news for sure, however there is still a lot of work to be done.
If you are one of the six who does not have an emergency fund or if you do not have at least $1,000 saved in your fund, then keep reading! I will break it down for you in simple and actionable steps to get your emergency fund in shape.
What is an Emergency Fund?
You may be asking, what exactly is an emergency fund? Well, an emergency fund in its simplest form is a savings account that you maintain for special circumstances (i.e. emergencies) or for unplanned expenses.
An example of a use for an emergency fund is if you need a new tire for your car due to a flat.
This is because it meets the three tests:
- Was it unexpected?
- Is it necessary?
- Was it urgent?
In this example the flat tire was not planed (unexpected), it is required to drive the car (necessary), it happened out of the blue, but needs a solution so that you can use the car to go to work or pick up the kids (urgent).
An example of what is not an emergency is to purchase those awesome, deeply discounted pair of shoes. This may meet 2 of the three requirements above, however it does not meet is it necessary. Sorry, I know that may be hard to hear, I know it was for me. The shoes are a want, not a need. But I feel your pain.
So now we know what an emergency fund is and is not. Now we need to figure out how to get emergency savings started.
Depending on your circumstances, you may be able to save an emergency fund in a few months or it may take a year. That is OK! Just starting one is an excellent first step to smoothing out your finances. It will make you prepared for the unexpected and allow you to start saving for other goals.
Putting it into Practice, Let’s Build those Emergency Savings!
Let’s start with those who say, I just do not have any extra money in each paycheck! I thought so too. But I was able to get started with emergency savings in under 6 months, more than 6 months faster than I originally planed.
How did I achieve that? Well I did three things.
Step One to Build Your Emergency Savings
First, start with an Emergency Fund Challenge. This is a simple way to get your emergency fund done it the most noninvasive way! Take a small amount of money from each weeks pay and set it aside. For example, when I started out saving for my first emergency fund I set aside $10.00 a week. It was a small amount that was easy not to miss in the day to day budget. Just by setting aside a small amount like this you would save $520.00 in a year. While that may not fully fund an emergency fund, it is a GREAT start!
I even have a free Emergency Fund Challenge Worksheet for you to save and follow along ————–> $1000 Emergency Fund
I started out with saving $10/week eventually increasing to $35/week, the maximum saving per week required in any month during the 12 month plan. Then I placed this into a money market account at Discover (note I have since moved the account to CIT, they have a slightly better rate!). But you can use any money market account (MMA) or a demand deposit account (DDA) you prefer.
It would be wise to find one that is easy to access (i.e. liquid) and provides at least some interest benefit. Discover hovers around 2.10% for their MMA (as of 4/14/19). There are other accounts, which have higher interest rates, just be aware of their minimum requirements. If you are starting from $0 then it would be best to chose an account that has no minimum starting balance requirement.
Step Two to Building Emergency Savings
Second, I opened a digit account. This is an app that automatically sweeps small amounts of money into a separate account based on an analysis of your spending habits. You can withdraw at any time. Twice a month I would sweep the money saved from Digit into my emergency savings account. please note that if you want control over how much you save into the app, then digit is not for you. This app does eventually charge you for this service, but they will let you use if for free for a while. You can use it to save, then transfer the money to your savings account until then!
There is another app that I use called Qapital. It lets you decide how much to save. It has many choices including the ever popular Round up Rule, 52-week savings challenge, meeting your fitbit goal and more! You cannot go wrong either way.
Step Three to Keep Building Your Emergency Savings
Third, I diverted my savings from my grocery savings apps and my favorite survey websites:
Ibotta account: You can join right (affiliate link) here.
If you do not know what Ibotta is, it is this amazing team based app that gives you cash back on what you buy at the grocery store and even online! There are lots of ways to boost savings, but I would caution you to only buy what you need and not go out of your way to buy extra. This app is a must have in the shopping savings game. This app has saved me the most out of all of them. In the last year I have saved nearly $500.00.
Savings Star account: You can sign up (affiliate link) here.
Savings Star is similar to Ibotta, except it does not have a group aspect or booster savings. But it will have savings for brands you most likely buy! This app also requires you bank $20.00 (previously was $5.00) before it will send you the funds via PayPal. In the last year I have saved $60.00.
Checkout 51 account: You can sign up here
This is another app that will give you money back at the grocery store. You have to bank $20.00 before you can request a check. I usually save about $120 – $180 each year with this app. You may save more, just depends on what you purchase.
Swagucks account: Check it out and you can sign up (affiliate link) here
Ok, so Swagbucks is for giftcards. But stay with me here. They have a spot where you can print free coupons (you get swagbucks to your account for each coupon you print) and those coupons save you money. I would print the coupons and earn, then the money I save I would put aside in a savings account.
Branded Surveys (Formerly Mint Vine): You can sign up (affiliate link) here
Branded Surveys provided you survey opportunities based on info you provide. They also give you points for referrals, taking their daily poll, and redeeming local offers. Once you receive 1,000 points that equals $10.00 and you can cash out through PayPal.
Earning and Saving, Now What?
As I earn or save money, I make sure to place it into my Emergency Savings account.
Step three is only temporary, I used it until I met my goal of $1,000 emergency savings. Once I met that goal, I divert these savings into another savings account (for example into the vacation savings account or car savings account). Every little bit counts!