Millions of Americans have little to no savings set aside for a rainy day, let alone a tsunami-volcano-asteroid hybrid.
According to one of the latest polls, about one-third of United States consumers, or 72 million Americans, do not have any emergency savings. In the event of a lost paycheck, a health emergency or a devastating event, millions of households would be in deep trouble.
Of course, this isn’t really a post-recession phenomenon. The savings rate – whether it’s in the U.S., Canada or Great Britain – has averaged in the low single digits even prior to the financial collapse a few years ago. People just don’t want to save money for the future and instead prefer to live in the moment and buy whatever they feel like.
This is a slippery slope to take and can result in a personal collapse. It’s akin to the old adage of those who live beyond their means are destined to live beneath their means. Indeed, for many households, it can be extremely difficult to place money under the mattress, but all sorts of income demographics can always save something. It just takes determination.
Unsure how to start building your short-term and long-term emergency fund? Here are seven steps to take today.
See also: How Are Americans Planning to Save Money in 2015?
1. Calculate How Much You Need
Grab a cup of coffee, sit down, sift through your paychecks and bills, and calculate how much you would need to cover your expenses for at least three months. This should consist of housing costs, food, vehicle maintenance, and so on. Essentially, it’s anything that is a necessity, a must and can’t live without.
2. Take an Axe to Your Budget
Once you have listed off what you spend and how much, take an axe to your budget and start cutting and place your household under austerity. This means that a lot of things should be cut, no matter how big or small. Whether it’s the daily coffee, the expensive VIP cable package, the monthly trip to a department store or that weekly visit to the movie theater, take it out of your bucket of expenditures.
3. Sell Stuff You Don't Need Or See
Six months ago, you purchased a tablet that set you back $250 but have only used it three times since then. Three months ago, you acquired a $100 jacket that you have only worn once. In other words, sell stuff that you never really needed in the first place or things that you haven’t seen since the last tax season. Books, clothing, DVDs and gadgets are all things that can be sold.
4. Be on the Lookout for Additional Income Opportunities
Do you have a couple of free hours on a Wednesday evening? Take the time to seek out additional income opportunities. Indeed, you don’t have to take on a part-time job that requires you to work 20 hours a week. However, you should search for at-home opportunities that create an extra revenue stream. Freelancing, conducting surveys or beta testing are some of the ways to earn more money.
5. Launch an Automatic Savings Plan ASAP
A lot of financial experts liken building an emergency fund to paying a bill. This means that you should treat your emergency fund as if you are required to cover a bill on an exact date each month. One monetary measure to incorporate into your strategy is to launch an automatic savings plan (ASP) as soon as you can. On the 15th of each month, for instance, $25 will be taken out of your account and placed in a high-interest savings account.
6. Establish a Small Change Jar
At the end of each workday or after a trip to the grocery store, do you have a lot of change in your pocket? Well, this is a prime opportunity to create a small change jar. Over a year-long timespan, you can contribute to this jar and then deposit it into your savings account. It’s a small but effective scheme to save more money.
7. Allocate Extra Money
If you have received a tax return, inherited money from a deceased relative or been provided with money for your birthday from your grandfather, then be sure to allocate some of that money into an emergency fund. This can help you either get started or be ahead of your schedule.
Here are a few other things to take into consideration when constructing a rainy day fund:
- Take it slow. Don’t think that you’re going to have a $5,000 emergency fund in a day.
- Celebrate milestones. Every time you reach a goal, treat yourself or your family.
- Be sure to insert this money into a low-risk, liquid and accessible account.
- Only use this emergency money for real emergencies and not for shopping trips.
- Give up on some of your vices, such as cigarettes, alcohol and lattes.
Saving money doesn’t have to be a dreadful task. It can be fun and informative, and it helps you feel accomplished every time you meet a new goal. Instead of treating it like a trip to the death house, consider it as an important hurdle to overcome. Besides, emergencies are never foretold, so you’ll be ready if/when something bad happens.