Life’s path rarely runs smoothly. No matter how carefully we plan, life often throws us a curveball. A recent Bankrate survey revealed that 28 percent of Americans had experienced a costly emergency in the last year.
So, it’s a sobering thought that 60 percent of Americans don’t have the savings to cover a $1000 emergency. 40 percent don’t have enough saved to cover even a $400 expense. That means they would have to borrow the money to cover the expense. One resource is putting it on a credit card, but that means paying interest on the amount. The average APR on credit cards is currently 21.28 percent, and it can be as high as 30 percent.
Surprisingly enough, Millennials were the most prepared. 47 percent of those aged 18-29 said they could dip into savings to cover an unplanned expense, a substantial increase from 33 percent in 2014.
If you’re already behind, living paycheck to paycheck, then putting an emergency fund together may seem unrealistic, but it is achievable. All that needs to happen is a change in your habits.
The first step to building your emergency fund is to set a reachable savings goal. Start with $500. That’s something that can be done in a few months or even less if you‘re frugal.
Put a time limit on it. “I want to save $500 by June 1st.” Ok, so now you can break that down into how much needs to be set aside monthly or even weekly.
The trick is to not have to earn extra money, but rather find the savings in the money you’re already spending. For example, look at your credit card payments. Is there a way to reduce your rates? Turn over your credit card and call the number on the back. A simple request to get a rate reduction might result in a pleasantly surprising outcome.
Shopping around for better insurance policies can save you money. So can installing a programmable thermostat and planning your grocery shopping instead of just wandering around the aisles picking up random, unnecessary items.
Try reducing your number of dinners out per month. You’d be surprised at how much you spend on restaurants. Saving money on gas is easy if you have a colleague who lives close by and is willing to carpool, or you could use public transportation.
Ask yourself, “How often do I watch Netflix? Cable?” Find those monthly items that you’re paying you’re for but not using. Is there a better cell phone plan you could be on?
Before you know it, that $500 will be easily available to you and ready to be stored away in your emergency fund account. In a few months, you’ll hit your first goal of say, $500. Now set another goal, maybe double the amount. And keep going until you can reach a goal of having an entire month’s worth of expenses sitting in your account -- then two months, three months, and so on.
When an emergency does happen, you’ll be able to sleep at night, knowing that you planned ahead and can continue living your life undisrupted.
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