As far as ‘things you can do with your money’ go, building up an Emergency Fund probably doesn’t sound like the most fun option. Once you have some cash flowing in your bank account, it’s tempting to either spend it, use it to pay off student loan or credit card debt, or start to save for retirement. But if you don’t currently have any emergency savings, that should be your first goal.
An Emergency Fund can help you weather the inevitable curveballs life throws your way - giving you peace of mind and flexibility when unplanned expenses hit.
How much should you set aside in emergency savings? Most experts recommend having enough to cover three to six months’ worth of expenses - which is a good chunk of change. But if you commit to it and work consistently to build your Emergency Fund, you’ll get there in no time.
The sooner you can fund your Emergency, or “Rainy Day Fund”, the faster you can start working on those other, more exciting financial goals!
Start small with an account buffer
While the ultimate goal is to get three to six months’ worth of living expenses or even more saved up, that can seem like an overwhelming sum of money if you have little to nothing saved currently. Remove that mental barrier by starting with a smaller goal: An account buffer.
An account buffer is a pile of accessible cash that sits in your bank account just like your Emergency Fund, but it’s one to two weeks of your income. An account buffer protects your account from small, unexpected expenses—so that you don’t have to go into debt to cover them. You can set up an ‘Account Buffer’ Goal in Simple to keep this money safe from spending.
Starting with the goal of building up an account buffer first can give you the momentum you need to keep saving, so you can eventually build that Emergency Fund!
For a while, your account buffer and Emergency Fund will be one and the same (your stash of cash used to smooth over small financial difficulties). Eventually, set a goal to have a both an account buffer and an Emergency Fund, so you can use them for different purposes: You’ll want to only use your Emergency Fund for financial emergencies (like ER visits), while your account buffer for can be used to cover small hiccups (like a higher-than-usual water bill).
If you look at your current monthly Expenses and know that you have some money to spare at the end of each month, set up an automatic contribution to your Emergency Fund Goal. Automatically transferring extra money to your savings is a great way to build up your Emergency Fund without a lot of manual effort or mental stress.
If you’re not able to make regular contributions, try to make contributions as often as you can. See if you can follow any of the other tips in this guide so that you can begin contributing regularly.
Use it for emergencies only
Your Emergency Fund is there for unplanned expenses - so if you have an emergency, by all means, use it!
Just try to avoid dipping into your Emergency Fund for things that aren’t emergencies - like a fun night out. In Simple, your Emergency Fund is in your Protected Goals Account, meaning that it is separate from your regular checking account, and that you can earn interest on it.
That means that the more money you can keep in that account, the more interest you can earn on your balance!
If you want to put more money into your Emergency Fund each month, you can do one of those things (or both): Cut costs, or find a way to increase your income. First, let’s talk about your expenses: Take a look at your monthly Expenses to see if there are any changes you can make to reduce your monthly costs.
Think big first, then small. For example, taking some time on the weekend to lower your monthly phone bill or downgrade your car insurance so that you can pay less each month are one-time things you can do this week that will result in large savings into the future. These options will get you the most bang for your buck: They don’t take a lot of time and they can save you a lot of money in the long-term.
Hopefully, you’ll be able to find a few ‘big’ ways to reduce your bills so you can contribute more of your budget to your Emergency Fund. If you’d like to cut your costs further, you can try making ‘small’ changes to daily habits like:
- Clipping coupons or using store apps for digital coupons
- Using cash back sites like Trim
- Cutting back on your caffeine habit (or other daily indulgences)
- Buying generic
- Meal prepping
- Skipping happy hour for drinks at home
Find another source of income
If you aren’t able to contribute to your Emergency Fund as aggressively as you’d like, it might be worth exploring new ways to increase your monthly income, such as:
- Asking for a raise.
- Developing a side hustle.
- Taking on freelance work.
- Selling something.
- Taking on a flexible part-time job (like driving for a rideshare company or walking dogs).
- Participating in the sharing economy.
You might also consider using your tax refund as a way to fund your Emergency Fund. Although it can be tempting to treat your refund as ‘free money’, you could commit instead to saving your tax return for your Emergency Fund before you even get it.
Make it automatic
Set up automatic contributions
The easiest way to save money is to make it automatic. That’s why Simple customers who use Savings Goals save about twice as much as those who don’t. If you’re serious about starting an Emergency Fund, setting up automatic funding is a great way to build it quickly.
Use Round-up Rules to save even more
Round-up Rules is another Simple account feature that can help you build your Emergency Fund faster. Whenever you make a purchase using your debit card, Simple will round up what you spend to the next whole dollar amount.
When the difference from those transactions reaches or exceeds $5, Simple transfers it to your Savings Goal in your Protected Goals Account — it’s so easy you won’t even feel it. It’s like a digital change jar…One that adds up to real money in the bank. (Learn more here!)
Build your Emergency Fund faster
Ready to build your Emergency Fund? If you don’t already have one, we recommend opening a Simple account, so you can earn interest on all your emergency savings.
Then, follow the advice shared here to start building it up as quickly as you can. The hardest part of saving up an Emergency Fund isn’t usually how much you’re trying to save, but just getting into the habit of saving in the first place. Do as much as you can now, and if your income increases, remember to increase your monthly contributions to your Emergency Fund!
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