Our Top Tips for Starting an Emergency Fund
1. Think Small (to start)
Some experts will recommend aiming for savings that will cover ALL of your expenses for 6 months or even 12 months. While reaching either of these goals would be ideal, they are both ambitious and can seem overwhelming or unattainable when you’re starting out. That’s why we recommend you start small. Set a goal of $500 or $1000 and see how long it takes you to reach it. Then, look at how long it took you and decide how much you can comfortably stash away every pay day. It might be $25, $50, or $100—only do what you’re comfortable with. It’s better to stay small and consistent than to overextend yourself and be dipping into your emergency fund all the time.
2. Take Stock
You might be asking “Where in my budget am I going to get this extra money to put aside?”. There are actually a few easy things you can do to help you come up with that magic savings number and where it will come from. Aside from the obvious expenses such as mortgage and loan payments, utility bills, groceries and gas, etc., take a look at where your money is going. Do you really need to go out for dinner every Friday or pick up a latte on your way to work? What other expenses can you cut out? You would be surprised at how quickly these frivolous purchases can add up. Simply ditching one of these habits could more than make up your savings contribution. Here are a few more ideas to find more wiggle room in your budget:
- Ask your insurance company for a loyalty discount or shop around
- Find out if you can bundle your utilities for a better price or consider downsizing that fancy cable package
- Ask your credit card company for a rate reduction
- Try to reduce your gas consumption by walking when you can
- Pre-plan your weekly meals and stick to your grocery list
- When you come into unexpected money from selling something or getting a birthday gift, consider saving a portion instead of buying something new
3. Set it and Forget it
Get in touch with your branch and ask for an automatic transfer to be set up for your pay day from your chequing account to your emergency savings account. Leaving the responsibility on yourself to transfer to your emergency fund every pay day will leave you tempted to spend it and to find excuses as to why you can’t save it “this time”. There will ALWAYS be a reason why you think you need the money for something else so this will help eliminate that disruption in your savings plan. It’s also wise to choose a savings account that pays a higher rate of interest and is not accessible with your debit card.
If this is your first kick at the emergency savings can, you’ll be surprised at how accomplished you will feel when you start to see your savings grow; especially when you are forced to dip into it and realize not every unexpected expense in life needs to be met with stress and anxiety. Before you know it you’ll be looking for new ways to bring in money to add to your fund just to keep the momentum going (no pun intended). Then, once you reach your initial goal, aim for one month’s living expenses and keep going up from there. Living a financially stable life is something to be proud of and your future self will definitely thank you!