5 Painless Ways to Build an Emergency Fund
Let’s face it — life throws curveball after curveball. Sometimes that comes in the form of an unexpected medical emergency or car repairs (or a global pandemic). And sometimes it may even mean the loss of your income. While these obstacles can make life interesting, they can wreak havoc on your finances.
When these unexpected events come your way, you shouldn’t have to root through your couch cushions to find spare change. Instead, you should rely on your emergency fund.
An emergency fund is a money you have set aside to cover unexpected expenses. Ideally, your emergency fund should have three to six months of your expenses in it. While this is a large amount of money to save up, it doesn’t have to be impossible. Better yet, you don’t have to cancel your favorite streaming services to successfully build one.
This article will discuss five ways you can painlessly build your emergency fund so you can handle whatever life throws at you.
1. Use the Round-Up Feature on Your Debit Card
Using your debit card can actually be one of the easiest ways to save money. It sounds counterintuitive since you’re actively spending your hard-earned cash when you swipe your card. But many debit cards offer users a round-up feature that allows you to save with every transaction.
When you use this feature on your debit card, your transaction is rounded up to the nearest dollar. The money from the round-up is then transferred over to your savings. So let’s say you make a purchase for a total of $20.50. Your card’s app will round that price up to $21, and the leftover 50 cents will be transferred to your savings.
Debit cards have become a prominent part of everyday routines. While each amount may seem pretty insignificant, over time, these round-ups can have a substantial impact on your savings.
2. Clean Your House
When was the last time you deep-cleaned your home and sorted through your belongings? Over time, you accumulate so many items that only sit around and serve as dust collectors. Instead of letting these objects take up space, take a weekend to declutter your home. You can then sell those unwanted items and add the proceeds to your emergency fund.
As you declutter your home, consider what items you use the most and which ones you should let go of. Go through every area of your house, including your closets and the garage. You’ll be surprised at how much stuff you can find that you haven’t touched in months.
Once you’ve sifted through your belongings and determined what to get rid of, it’s time to post. First, determine where you want to sell your items. If you have clothing to sell, consider a thrifting app such as Depop, Poshmark, or thredUP. If you’re selling furniture or something large that would entail a hefty shipping price, consider using Facebook Marketplace or Craigslist.
As you can see, there are several online platforms available to you that allow you to sell your unwanted stuff. When you’ve determined which ones to use, snap photos of your items and write detailed descriptions. (This includes measurements, even if it is a pair of pants.)
Decluttering will not only help you make more room in your home, but it can also help you make some extra money. That’s good news for your rainy day fund.
3. Start a Side Hustle
After a 40-hour workweek, more work is probably the last thing you want to think about. But side jobs can be a fun and easy way to make extra money in your spare time.
Many potential side hustles are flexible in terms of schedule. So you can work as much or as little as you’d like. If you have a vehicle and enjoy being behind the wheel, consider driving as delivery or ride-share driver. If you’re great with animals, go online and see who in your area is in need of a pet sitter.
The Covid-19 pandemic gave us plenty of time to learn new skills. If you developed a love for a new hobby, turn it into a side business. You can sell products you make through e-commerce websites such as Etsy or Shopify. With just a little extra time, you can make additional money that will help your emergency fund grow.
4. Open a High-Yield Savings Account
As you build your emergency fund, consider keeping your money in a high-yield savings account. Many high-yield savings accounts generate more interest than a traditional savings account will. In fact, they can generate 20-25 times more interest than your typical savings account.
Several online banks offer high-yield savings accounts to clients; in fact, such banks are typically the source of the highest interest rates. Before you put your emergency fund in one, though, research which savings account is right for you.
Take fees, minimum balances, and availability into consideration. After all, this account is there for your emergency fund. While you can always transfer funds from your high-yield savings account to checking, it may take 24-48 hours. If you can’t access your money in a true emergency, then it’s not benefiting you.
5. Set Up Automatic Transfers
When you get paid after working 40 long hours, don’t forget to pay yourself. And in this case, that means paying your emergency fund.
Many banks offer automatic transfers that you can set up to send a recurring amount to your savings. This amount doesn’t have to be drastic. Start by transferring an amount that you’re comfortable with, one you won’t even notice leaving your account.
By setting up this recurring transfer with your banking app, every time you get paid so does your emergency fund. If you were to transfer $20 every Friday, you’d have $1,040 by the end of the year. This can go a long way in the event of an emergency.
Building an emergency fund isn’t going to happen overnight. But while it will be challenging, you don’t have to give up all your joys in life to succeed in building one. Add to your emergency fund at your own pace and avoid using it if it’s not necessary. If you do dip into your emergency fund, try to quickly restore it.
Your emergency fund is there to support you when the unexpected occurs, so start building yours today.