- Automatic savings in a separate account
- Consider interest rates and cash back options
- Pay off debt
- Get a part-time job
- Sell it, scrap it or pawn it
- Refinance Your Home
- Other strategies
- The Bottom Line
Life is full of unexpected surprises, and some of them can really hurt your budget. Emergency situations such as fixing a car, replacing an appliance, paying a high medical bill or an unexpected trip can deplete your savings or cause you to make unwise decisions that could affect your financial future.
To be ready for life's unexpected events, you need an emergency fund, but first, Andrew Johnson of Michigan-based GreenPath Debt Solutions, advises Investopedia readers to consider a few key factors: "Is the emergency fund for a full-blown laid-off? Is it something big like a new roof or heating system? How many incomes are there in the family? Are you the sole breadwinner? Does your partner have a full or part time job? "
Johnson tells Investopedia that answering these questions is the first step to increasing financial literacy. You need to decide how much money you need. If it's a worst-case scenario like a layoff, first develop a household budget. "Add up all your expenses: repaired, such as car insurance and mortgage, and variable, such s food and entertainment. "
Once you have determined how much money is needed, you are ready to consider ways to achieve your goal.
Automatic savings in a separate account
Instead of keeping all your money in one account, Johnson recommends putting it in a separate emergency savings account. "If you simply say you'll save more and leave it in a joint checking or savings account, you may not see the money grow", Johnson explains. However, he says it's an incentive to keep it in a separate account where you can watch it grow.
Not only should you put the money in a separate account, but you should also deduct a certain amount on a regular basis. Chris Britt, co-founder and CEO of San Francisco-based banking app Chime, tells Investopedia, "Instead of deciding what to save each week or month, opt for an automatic savings plan. ''
So how much should you put into your emergency fund? Dave Harding, president of Hardin Financial Group in Troy, Michigan, recommends 10% of your income until you have at least three months of income saved up. "Always replace any spent money from the fund as soon as possible or the emergency fund only works once", Harding warns.
Consider interest rates and cash back options
Sometimes a few small steps can lead to considerable savings. "Maximize your dollar by choosing a banking option that offers cash on debit purchases", advises Britt. He also recommends considering interest rates when choosing a savings account, as money from premiums and rates can add up over a period of time.
Pay off debt
Your financial obligations may limit the amount you can contribute to your emergency fund. Britt recommends paying more than the monthly minimum, which reduces growing interest costs and allows you to pay down debt faster so you can direct that money to your emergency fund.
And Joe Heider, founder of Cirrus Wealth Management in Cleveland, Ohio, says, "Take a look at your credit card debt to see if you might be able to take that debt down to a lower interest rate and take advantage of the savings. an emergency fund. "
Get a part time job
Consider putting your skills to work by getting a part-time job to generate extra income for your emergency fund. Harding warns that timing is critical. He says saving money for a future crisis is a good idea, but it won't help if you need the funds now.
He also recommends "special Directing income from bonuses and tax returns to your emergency fund.
Sell, scrap or pawn your home
Most people have accumulated unused items that take up space and collect dust. Johnson recommends selling everything you no longer use. "The same can be said for excess metal in the garage, such as copper pipes, aluminum and steel, which can be sold to a scrap yard", says Johnson. He says an old brass chandelier in the attic can also be sold and recommends pawning jewelry that has little or no sentimental value.
Refinance Your Home
If you have equity in your home, Heider recommends Investopedia readers refinance it. "Although interest rates have gone up, they are still low and now is a good time to do it and put savings into an emergency fund. "
Other strategies
Dolph Janis, founder and owner of Clear Income Strategies Group in Charlotte, North Carolina, offers three more tips to help you save money:
" Order water instead of a drink with lunch or dinner. Take the extra $3. 00 and later put it in a savings account. Do the math if you do this ten times a month, that's an additional $360 savings per year.
Check your phone bill. Need both a home phone and a cell phone? Do you need this plan? You could easily save $40 a month here, which is another $480 a year.
Check your cable or satellite bill. Do you need all of these channels? Potential savings here of $35 per month, which could be another $420 per year. "
If Janis makes just these three changes, he concludes that you could save an additional $1, 260 each year by differentiating between wants and needs.