You just paid your rent for the month, your bill payments were due last week, you’re awaiting your next paycheck, and your car stops working – do you have the emergency funds you need for getting back up and running? 55% of households would struggle to “make ends meet” after facing a financial shock, such as the one described above.
The first line of defense for financial emergencies such as car repairs, medical bills, pay cuts, or even a broken phone can be an emergency savings pool. Additionally, building emergency savings can be an essential step in improving financial welling.
Like many things, the most challenging part can be figuring out where to start and then developing a plan that you can stick to. Building up this type of savings is likely not something you can do overnight – instead, think of it as a slow and steady journey.
Here are some steps that you may find helpful in starting to build your emergency savings:
1. Choose A Goal
Decide what you want your goal amount to be, or think of a staggered approach – maybe you want to reach $500 in savings this year, $1,500 by year two, and $3,000 by year three. No matter the amount, setting a target and writing it down will help you stick to the plan and allow you to see the progress you are making along the way.
2. Set up a Dedicated Account
Before starting your savings plan, consider opening a dedicated account to track your progress and see your savings grow. Separating your savings can also help keep you on track, so you aren’t enticed to spend the savings you are working hard for. When opening a new account, look for accounts that meet your savings goals by considering fees, minimum balances, and activity levels.
3. Develop Your Action Plan
Once your target goal is set, you need to figure out to reach it. If you plan to reach $500 in savings this year, how much and how often will you contribute to your savings pool? One way to break this down is to think of your savings as a bill that you pay to yourself each month. You can look at setting up auto-transfers from your primary account to your savings either monthly, weekly, or each time you get paid. Another thing to consider is your overall budget; make sure what you are putting into savings aligns with your overall budget and what you can afford.
4. Celebrate Successes
It is important to celebrate success and milestones along the way. Now, we aren’t suggesting to spend all your savings, but be sure to do something small to make the journey worthwhile. Then, consider starting the process over with another increment to keep growing your savings! An easy way to track and celebrate your success is to print off savings coloring sheets that you can fill in as your savings grow.
For more savings-building tips and resources, check out the Consumer Financial Protection Bureau’s Savings Booklet.