Emergency Fund 101: Tips and Tricks to Get Started Today

Emergency Fund 101: Tips and Tricks to Get Started Today

March 04, 2024

An emergency fund is one of the most essential financial tools you can have in your financial toolbox. Approximately 30% of Americans have some emergency savings, though most do not have enough to cover three months of expenses, the recommended amount to store away.

 

It is hard to save up money, especially in this age when there is so much available to buy. The cost of living is expensive, entertainment is expensive, food and gas prices are astronomical, as well as childcare, school, taxes, etc. We reach deep into our pockets for whatever is left over to put toward savings, and for many people, this is slim. However, money accumulates over time, even putting away small amounts. Planting the seed in your mind that you are going to do it is a great start.

 

Here are a few tips and tricks to help you get started today toward building yourself an emergency fund:

 

1.      Create a budget

It might seem self-explanatory, but creating a budget allows you to see how much money is coming in and going out and what you spend it on. If you account for every dollar, there are no surprises, and you can evaluate how much you can feasibly save each paycheck toward an emergency fund.

 

2.      Cut back on food expenses

Food is a huge expense that we can control. Pulling back on your food expenditures might be one of the more difficult things to do because who doesn’t love to eat good food? We have easy access to great brands and restaurants, but it adds up over time. It isn’t just going out to restaurants or buying name brands in the store, but also today's popular practice of ordering delivery to your doorstep through DoorDash and Uber Eats.

 

It is fun and convenient and also expensive. Cutting back on eating out and purchasing the name brands may benefit you significantly in your quest to save and grow, for example, an emergency fund. Think outside the box, search for cheaper store-brand products nearly identical to some name brands that cost three times as much. Consider cooking more meals at home and bringing your lunch to work. If you have the initiative, it is possible to cut back on food costs. Once you have your food spending under control, you can look to cut back spending in other ways.

 

3.      Set goals on spending and saving

Setting short-term and longer-term spending and saving goals that you can work toward is critical when it comes to building an emergency fund. Short-term goals provide you with a foundation from which to work and give you the motivation and confidence you need to keep it going. The long-term goals help with the direction you want to go and providing a beacon to work towards. It can help you to stay on course to see through to the end result, which is the amount you hope to have in your emergency fund.

 

4.      Automate your savings

The benefit of automating your savings is that the money automatically comes out of your paycheck into an account of your choosing, or you can have funds pulled from your bank checking account on a set day each month. This can be helpful because the money isn’t sitting there for you to see and be tempted to spend. You can think of it as “out of sight, out of mind.” When selecting an account to store the money, you don’t just have to put it in a savings account with next to no growth. Instead, you can have the money transferred into, for example, a high-yield savings account or some other low-risk instrument that will earn interest and compound over time. The contributions hopefully grow, and your emergency fund can be established enough to help lessen the blow should anything unexpected happen.

 

5.      Consult a financial professional

Budgeting and working out a savings plan to build an emergency fund can be tricky while navigating your expenses, paying down debts, and maintaining your everyday life. Consider consulting a financial professional who can help you modify your strategy and provide you with insight into effective techniques.

 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

 

Sources:

How to Set Financial Goals for Your Future (investopedia.com)

Emergency Fund: Your Guide to Cash on Hand | Morgan Stanley

3 big benefits of automating your savings - CBS News

Setting Financial Goals And Achieving Them (forbes.com)

 

 

This article was prepared by LPL Marketing Solutions

 

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