Slow and steady wins the race: Try these tips to start and build your emergency fund.
Living paycheck to paycheck often feels like walking on a financial tightrope. Every dollar has a purpose, and unexpected costs can disrupt your balance. An emergency fund is a good way to have a cushion for unforeseen expenses. Use these tips to start and build your emergency fund so you can help lessen your financial stress.
In your existing budget, you may be able to cover essentials like rent, food and utilities. However, it’s worth it to look at any discretionary spending that might happen spontaneously. They might be as simple as non-essentials (an extra bag of chips) at the grocery store that can add up. Those funds you may spend on impulse buys could be used to start building your emergency fund. Note the types of discretionary spending that happen most often, and ways you might be able to stretch dollars to save more. That could include fewer meals out (even just one less per week) or packing your lunch. Or, set up your own discretionary budget challenge to save to see how much you can put aside in a week or month.
If you stumble upon unexpected money like a tax refund, think about splitting it in half and channeling a portion into savings or debt reduction. This proactive approach can help build your savings over time.
If you would like to build an emergency savings fund, you might consider a side job, if you have time. (According to a recent MarketWatch survey, 54% of adults have a side-hustle, or a job in addition to their full-time gig, including 71% of gen zers and 68% of millennials.) You could consider this even just for a short time, to start or boost emergency savings.
Traditional savings accounts don’t have very high interest rates at all. But there’s another type of account: a high-yield savings account. These accounts average interest rates of the low single digits, typically far higher than traditional savings accounts. To compare interest rates, do a search for “high-yield savings accounts.” Once you’ve identified how much you can put in savings, consider setting up an automatic weekly or monthly transfer into that high-yield account.
If debt is a barrier to saving, you may have some options. If it’s a small debt, you may want to see how quickly you can pay it off. You could also see if you can consolidate debt, giving you one payment instead of many, or consolidate into debt with a lower interest rate, if possible.
Your monthly bills might be the source of your financial stress, which is why they’re worth revisiting. Can you cut back on certain subscriptions? You could also request a free energy audit from your electricity provider to identify savings opportunities. Insurance is another area where savings might be lurking. Compare rates for home and auto and consider bundling multiple policies for a discount. If you have medical debt, consider contacting the hospital or clinic managing your bills to discuss payment renegotiations. You can also request an itemized bill for your previous care to see if there are any errors.
The path to financial security often feels overwhelming, especially when living paycheck to paycheck. However, you can pave your way to a healthy emergency fund with patience and a focus on small wins. Motivation matters, and every little bit counts.
A version of this originally appeared on HerMoney.
Log in to your Principal® and Enrich account and figure out how much you may want to set aside for unexpected expenses with this emergency fund calculator.
