You're Gonna Build a Foolproof Emergency Fund Before the Next Market Shock Hits
The best way to survive a market shock is to have a sizable emergency fund.
Unfortunately, 21% of Americans have no emergency savings at all according to The Currency, and only about 46% say they can cover three months of expenses, as per Bankrate. To build a successful financial plan, stabilizing your cash is an important first step.
Here’s how to do it.
Face Forward: Ignore These 6 Harmful Myths About Debt
Don’t Delay: Start Growing Your Net Worth With Smarter Tracking
Set Your Target
When it comes to your emergency fund, most experts recommend setting aside at least three to six months of essential living expenses. If you lose your job or otherwise experience a loss of income, you’ll want an emergency fund that could cover your rent, groceries, utilities, insurance and debt payments for at least a couple of fiscal cycles.
Start Small
Immediately saving three to six months of living expenses can seem daunting at first. If you earn $50,000 per year, for example, that means your emergency fund should be somewhere between $12,500 and $25,000. But the key is to start small.
Target a “starter” emergency fund of $500 to $1,000. That’s often large enough to cover minor financial emergencies, like a car repair or medical expense.
From there, try to build one month of expenses. Continue in this stair-step fashion until you’ve socked away at least three to six months of savings.
Automate Your Savings
The most “foolproof” way to build an emergency fund is to automate your savings. Set up automated transfers from your checking account to your savings on the day you get paid. This removes all emotion from the equation and ensures you don’t “run out of money” before you save.
Treat Your Savings Like a Bill
View your savings like a mandatory bill, not a discretionary item. Just like you wouldn’t skip out on paying your rent or utility bill every month, think of your savings deposit as mandatory as well.
Cut Back on Discretionary Spending
You don’t have to stop spending money on everything you enjoy. Start by trimming just one or two discretionary expenses and you’ll be on your way. It might even be easier than you think.
If you subscribe to six streaming services, for example, consider if you really need all of those or if you can get by on just one or two. Cutting out four streaming subscriptions could potentially save you $100 or more per month or $1,200 per year.
Dining in is another easy way to cut back. By eating at home six nights per week instead of three, you could potentially save $300 or more per month or $3,600 per year.
Doing just these two simple things could kick almost $5,000 into your emergency fund in a single year. There are likely other areas of your budget that could use some trimming as well if you’re serious about building your emergency fund.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
Discover a Smarter Way to Keep Unexpected Expenses From Derailing Your Budget
Got $20 To Spend at Dollar Tree? Consider These Fine Spring Items
Be Honest — Do You Have Enough Cash at Home in Case of a National Emergency?