You can stress less once you have cash in an emergency fund. Cash to cover surprises. Just starting your cash emergency fund can make you feel better. Then keep it going and growing toward your target amount.
Many advisors suggest it’s good to have an amount that covers key expenses for at least three months and up to six months. Even if that sounds tough, it can be easy if you start small and use an automated saving app to keep you on track. Think of your cash emergency fund as one element of your financial health and security, your buffer against life’s surprises with your car, home, health, or job. Having this cash helps you avoid debt when the surprise cost hits. Check these steps and strategies for building a reliable emergency fund that can offer peace of mind and financial stability.
1. Define Your Financial Safety Net
Start by evaluating how much money you need in your emergency fund. Aim to save three to six months of essential living expenses and family responsibilities. This amount will serve as your target.
2. Choose the Right Account
Open a new account, preferably with low fees and high income, keeping your emergency fund separate from cash used for daily expenses. You can find an account that has no fee and that generate incomes, like the Beanstox Power Savings account, which is available free and offers over 5% yield through low-risk T-Bill ETFs*. You can compare that to High Yield Savings accounts if you find any you like with low or no fees.
*5% based on the 30-day SEC yield of the Beanstox short-duration bond portfolio ETF constituents.
3. Adjust Your Budget
Adjust your budget to identify and avoid non-essential expenses, such as too much dining out, excess subscriptions, or luxury spending on “stuff you don’t really need”. Consider these simple budgeting ideas:
- Try a Temporary Spending Freeze: Set a period of at least one or two months to avoid spending on anything except essentials like housing, utilities, and groceries, saving the rest. This will help you get the ball rolling for a quick win.
- Credit Card Debt and Billing Cycles: Do not add credit card debt to build your emergency fund. Better to split your cash savings, using some to pay down debt and some to get the emergency fund going. Also consider adjusting the billing cycles of your credit cards to coincide with the end of the month. This can simplify tracking monthly expenses, seeing all your expenditures at once, and help to make better informed decisions about where to find savings for your emergency fund.
- Downgrade Subscriptions: Reevaluate your subscriptions, downgrade the ones you use the least, and allocate the savings towards your emergency fund.
- Negotiate Bills: Your cable, internet, and cellular providers may give lower rates to new customers, that you can get too if you contact them and insist on getting the same low rates. Do a quick search on the web so you know the rates being offered. You could even totally cut the cable if your internet is good enough for TV streaming. Maximize your savings and add to your emergency fund.
4. Automate Your Savings
This is the easiest important step. Set automatic transfers to your emergency fund from your checking account after each payday. Automation makes saving consistent and effortless, integrating it into your financial habits seamlessly. You can set up this feature with a few taps of a button in a Beanstox Power Savings account.
5. Boost Savings When Possible
Every time you get more cash, from a gift, bonus, or a pay increase, you can increase your savings rate. Small increases can significantly expedite the growth of your emergency fund.
6. Start Automated Investing to Build Wealth
As your emergency fund grows toward your target, you can start automated investing using an account such as a Beanstox Wealth Builder or Stocks 500 account. Investing in a diversified blend of stocks and bonds, is a simple strategy used by large and small investors to grow wealth.
So, what next? Get started, keep it easy with an automated savings and investing app like Beanstox, build your emergency fund and your wealth over time, so you can relax!