If a financial calamity like a layoff or illness hit you today, would you be ready?
Many Americans — if they were honest — would have to answer “no” to that question. But you can do better.
Money Talks News founder Stacy Johnson recommends taking three crucial steps toward building an emergency fund.
Step 1: Assess your situation
Take stock of your income, bills and savings. Create a baseline budget — the absolute minimum required for food, shelter, utilities and debts, such as auto loan payments or minimum balances due on credit cards.
Compare this with your household’s current income. If you see you’re not going to make it, turn to a nonprofit credit counseling agency for some free help. Counselors can help you develop a workable budget and may be able to negotiate with your existing creditors.
Step 2: Track your spending
See where your money is going now. Our partner YouNeedABudget can help you build a budget that will ensure more of your money ends up in your emergency fund. For more, check out “This Tool Makes It Easy to Track Your Spending and Build Your Savings.”
Once you have established a solid budget, look for ways to save. For example, take a bite out of food bills by cooking at home, bringing lunch to work and scheduling potlucks with friends instead of going out to restaurants.
Also, trim your transportation costs with a carpool, or walk or ride your bike more. “Do whatever you can to use that car less,” Stacy says.
Step 3: Trim your monthly expenses
Take a look at your utilities, cable and phone bills. These may be small, but they add up. Look at each one individually, and see where you can cut.
For example, there is plenty you can do to cut the cost of cooling a home, from using awnings to turning up the temperature setting on your air conditioner. You also can cut the cable TV cord and find easy ways to save on your cellphone bill.
You can also hire professional help that will look for ways to cut your costs. To learn more, check out “Should You Hire a Service to Negotiate Your Cable and Other Bills?”
Step 4: Plan ahead
You can also take steps now to prepare for any financial crisis that might lie ahead. For example:
- Pay down debt so you can redirect your income toward savings.
- Save any windfalls for a rainy day.
- Refinance your debt to increase your cash flow so you can save more.
For more tips when building an emergency fund, check out “9 Tips for Starting an Emergency Fund Today.”