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Many personal finance experts recommend having an emergency fund for ready cash supply in case of any unforeseen circumstances like job loss or critical health issues.
That cash you set aside can also be used to take care of things like replacing a broken dishwasher, fixing a faulty faucet, and a long list of other domestic issues. Though it’s essential to have an emergency fund, it’s not clear how much you should set aside for a start.
For most people, setting aside a modest starter of $500 – $1,000 for an emergency fund is easier said than done. As a matter of fact, a survey carried out by Bankrate revealed that approximately six in ten Americans say they don’t have sufficient cash on hand to cover even the most minor of calamities.
Most of those individuals have emergency funds, but they’re always stagnant on an annual basis. If you’re among the unfortunate few who have not yet figured out how to boost the figures on your emergency fund, no need to stress your mind any longer.
This post covers a few practical ideas you can get started on to increase your emergency fund by $500.
1. Track Your Spending
The first step to boosting your emergency fund is to have a list of all your fixed monthly income expenses, all the way from loans to the household expenditure.
Have a clear distinction between the expenditures in need of urgent attention and those that can wait. Channeling your funds towards needless expenses can result in wrong or abnormal estimation of what’s required in your emergency fund.
Having a list will also help in accrediting those expenses you can minimize on to enhance the rate of your savings.
Therefore, by going through the whole process of budgeting, you’re not only gauging your emergency fund requirements, but also finding alternative ways to fund your emergency entities. By tracking your spending, you stand to achieve a lot. You will:
- Boost your chances of achieving your financial goals.
- Decrease your financial anxiety.
- Have a clearer insight into where your money goes every month.
- Develop a better relationship with your spouse.
- Decrease the rate at which you buy impulsively.
If you don’t have a list of how you spent your money last month, don’t beat yourself up about it – you’re not the only one. Now that you know about the importance of having one don’t bury your head in the sand and leave the expense-tracking to ‘others with more self-discipline.’
Tracking your expenses is not as complicated as you think. Just take a few minutes every day to look back on the bills you paid or the orders you placed online to determine how much you can set aside for your emergency fund.
2. Evaluate Your Recurrent Income Streams
Assessing your income streams is a crucial leap, especially for people in business and small-time vendors who manage diverse income sources.
Make a distinction of whether your multiple income sources are either periodic or continuous. For instance, assess whether your monthly income is constant, while your annual bonus is periodic.
A decisive action you can’t afford to ignore when evaluating your income streams is ascertaining your net worth. Determining your financial status quo is achieved by taking your asset value and subtracting it from your liabilities.
Though apps such as free spreadsheet can do this for you in a fraction of a minute, the math is relatively simple.
Put down everything you own that you consider to be an asset in writing (i.e., your home, investments, cash) and deduct everything you believe to be debt (mortgage, credit card debt, student loans, etc.).
When you do this consistently, you’ll notice that your periodic sources of income are naturally variable. Utilize the periodic income to establish round sum investments and make monthly investments of the continuous income.
3. Build on Your Savings Rate
The moment you’re done budgeting for the essentials, you’ll be able to assess your total monthly savings. Find out whether your current savings rate is good enough or there’s a need to double or triple it.
Analyze your expense heads as well as your monthly income. Find out the specific areas that are shaking up the rate at which you save.
If possible, draft a few plans to minimize or cut down your expenses. If you drained your savings accounts in the midst of a financial crisis or you’re just getting started with the savings process:
- Before paying for bills and other necessities, put it into your savings account before you get tempted to squander it.
- Form a habit of saving by committing yourself to set aside a certain amount every month.
- In your budget, make saving a major priority above every other item on your list.
- Once you’ve eliminated extra expenses, deposit the remaining amount in your savings account. Do the same for any bonus, raise or tax refund you receive.
- In your hunt for a new job, give priority to those with strong benefits such as life insurance, health insurance, transportation, etc. The less you pay for these, the more you can set aside for your savings.
4. Start with Small Amounts
Don’t have sleepless nights and busy days all in a bid to raise all the savings to increase your emergency fund. If you’re not careful, working yourself too hard can take a toll on your health.
Most of us develop a laid-back attitude when making lump sum investments that cause us to procrastinate the entire savings process. Steer clear from pitfalls of this nature as you expand your emergency fund. Start small if you want to grow big.
The thing about building about an emergency fund is that the more you save and the longer you save, the better your chances of reaping an excellent result. Why is time so important when it comes to increasing your savings or emergency fund?
This is mostly because your compound interest increases with the period you take to save. What this means is that the longer you take to save, the more you add to your emergency fund.
At this point, your money will be doing all the hard work for you. If you’re not employed, that shouldn’t hinder you from saving either. Spend the little money you have and be able to have something left to deposit into your emergency fund.
This can make a significant difference if you do this more regularly.
5. Spend Your Monthly/Annual Income Strategically
Among the best ways to generate a substantial amount of money to grow your emergency fund is to pinpoint that one expense that’s taking up a massive chunk of your budget but you can do perfectly fine without it.
It’s also an excellent way to turn your most stressful expense to your most useful source of savings. A money-saver of this kind is commonly referred to as a ‘budget buster.’ A huge example of a budget buster is cable TV. For one, you can either do without it or pay for a more budget-friendly package.
Clearly adding to your emergency fund will require you to make some tough lifestyle changes: lower your thermostat, take the bus on Fridays, drink fewer to no Starbucks lattes, eat meatless dinner on Saturdays, etc.
The best part about it is that even the slightest tweaks in your lifestyle can have a significantly positive impact on your finances in the long run. For every purchase, be sure to spare some change, whether big or small.
Though it may feel like a painfully quaint and slow strategy, those before us – our parents and grandparents – understood the power of saving one dime at a time.
Let your savings grow the primitive way by funneling every spare change into a jar. Once the jar is full, you can go ahead and deposit it into your emergency fund.
6. Save Money on Grocery Via Smartphone Apps
In 2015, Americans spent a whopping $7,023 on food alone in 2015. This data is based on a recent study carried out by the U.S. Department of Labor’s Bureau of Labor Statistics.
Aside from transportation and housing, food is rising to become one of the average household’s most expensive items. While there are those items on your budget that you can’t do much to cut down on, e.g. your mortgage payment or monthly rent, there’s one item that’s not beyond your control: food.
Using these apps, you can save a significant amount of your income, which may very well boost your emergency fund by a considerable percentage:
Ibotta currently has many connections with the most well-known grocery chains. Using this cashback app alone, a good number of users are getting $20 and over in one month.
How does this app work? This is how: you have to scan your grocery receipt and send it to the Ibotta team. Within a week, you’ll get the money you spent on your groceries back along with a $5 bonus for your first redeemed offer.
The best part? We’ve partnered with Ibotta so that you get a $10 bonus when you register as a new user using our sign-up link and claim your first offer.
Just like Ibotta, Checkout 51 gives you the unique opportunity to get your cash back for every grocery shopping you do. Their database is full of cash back deals and opportunities only in select grocery stores.
Do a quick search of grocery stores in your locale and find out if they’re compatible with the app. The moment you’ve scanned your receipt, you receive your first payment as soon as you hit $20. Every once a week, new deals are uploaded to their database.
If you love shopping, you can’t afford to step into stores without this app on your smartphone. This app is known to reward their users with free money for shopping.
They provide discounts at stores such as Macy’s, Target and many others. What’s more, you can get free money for simply scanning items without actually purchasing them. Once you’ve accumulated enough points, you can use them for redeeming gift cards to major retailers such as Starbucks.
Alternative grocery cashback apps you should try out include Favado, Food on the Table, Grocery Smarts, GrocerEaze, Coupons.com, Grocery IQ, and SavingStar. The fact that you don’t have to part with a dime to use these apps makes it even better.
Learn more about these apps before using them to know how much of your savings you can dedicate to your emergency fund.
7. Find an Alternative Account to Save for Your Emergency Fund
The moment you’ve made up your mind to save money for a personal emergency fund, don’t settle for just any bank account. Typically, emergency funds are supposed to be highly accessible and relatively easy to withdraw.
If you’re starting in small amounts, the best place to do so would be in savings bank accounts which offer significantly higher interest rates. For every month you deposit a certain amount of money, you earn a significant amount of interest on your savings amount.
When you’re thinking of investing higher amounts, or you’ve accumulated a considerable amount of savings, direct your emergency fund to liquid funds. Of late, money market funds have been boasting of good returns and have generally been performing well.
Liquid fund accounts offer slightly better returns, plus they are more tax efficient. You may not be aware of this, but common bank accounts yield a 4% per annum interest, which is comparatively lower.
Liquid accounts offer better returns of approximately five to seven percent p.a. that can be withdrawn after twenty-four to forty-eight hours. If for one reason or another, you’re unable to open a liquid account, sign up for an online saving account to receive similar benefits.
8. Ensure You Have a Health Insurance Plan at Hand
Having health insurance goes hand in hand with emergency planning. Though most emergency funds are meant to be liquid assets, most individuals share a common emergency: health. This is why having a health insurance plan at hand is the best way to be prepared health-wise.
Today, most young people underestimate the need for a health protection plan in their emergency funds. Unbeknownst to them, health issues are among the most common emergencies among individuals of all walks of life.
If you already have an emergency fund, you won’t be able to expand it if you keep deducting a few dollars to cater for your health emergencies. With a health plan in place, you’re assured of keeping the money in your emergency fund intact.
One reason that a lot of people avoid linking a health plan to their emergency fund is due to the ignorance that they’ll never fall sick any time soon. It’s a known fact that with each passing day, more and more people are falling sick from new ailments.
Putting into consideration factors such as these, it pays a lot to take the necessary precautionary measures including signing up for a good, reliable health protection plan.
9. Use the Emergency Fund for it’s Intended Purpose
Emergency funds come in handy when you encounter unforeseen costs that would otherwise be a threat to your emergency fund. An example is an unexpected rise in your rent. NEVER mistake your emergency fund for a savings fund.
The former is money you’ve been putting aside to purchase a particular item that you can’t afford at the moment. However, not all situations are as clear-cut as island getaways and medical bills. You should ask yourself the following questions before spending a dime on your emergency fund.
Is It Necessary?
We live in hard economic times where we often confuse our needs with our wants. Let’s say, for instance, your kids just broke your car window, and you use that particular car to get to work every day. Or, you have some faulty faucets, and they’re creating a mini-pool all over your house.
These are emergencies you just can’t ignore or put on hold. On the other hand, if you’ve grown weary of your phone and you want to upgrade to the latest model, or you just can’t stand having the same countertop tiles, and you feel like replacing them, think twice.
Upgrades aren’t all that necessary when your phone or kitchen can do without these unnecessary upgrades. Stealing from your needs to cater for your wants is what’s pulling you back from increasing your emergency fund.
How Unexpected is it?
Sometimes, life brings some unexpected and inevitable surprises. Being relieved of your job is among the most common issues among employed individuals. In such a situation, rely on your emergency fund to take care of you and your family until you land a better job.
If a natural disaster like a flood or tornado hits your entire neighborhood, don’t feel guilty about breaking into your dark-times stash. Use the money in your emergency fund to cover property damage and insurance deductibles that are not covered by your insurance policy.
Annual or monthly expenses don’t count as emergencies. For rent or school fees and other stuff you need to cater for on a monthly basis, rely on your savings fund.
How Urgent is It?
Once immediate needs arise, you’re probably not aware of how you can take care of it. If, for instance, your car suddenly breaks down and needs to go to the mechanic urgently, rely on your emergency fund to cater for this.
At times, it may feel like you’re depositing money into a fund isn’t helping you in any way. It actually does way more than you can imagine. If you have an immediate, unexpected expense, only then will you value your emergency fund.
Maintaining a healthy emergency fund can only be achieved once you start using it only for emergencies alone. Never withdraw money from your emergency account to fund your day-to-day expenses – most of which are unnecessary.
10. Keep a Periodic Check of Your Emergency Fund
Monitoring and assessing your budget from time to time can ensure that your emergency fund is kept at optimal levels. When you experience a drastic change in your financial plans, be sure to revisit your emergency fund requirements and make the necessary adjustments.
Doing so will help you maintain a fully-functional fund. As you monitor your emergency fund, don’t be influenced by short-term performance figures. Experts recommend that if you own an emergency fund, you should keep saving continuously for the next six months or so.
Within this time, you will develop clear strategies of increasing funds. If you’ve been saving for some time now, don’t go on without knowing how much you’ve arrived at so far. Have detailed information such as how much you deposit into it monthly and how much you expect to reach by a stipulated period.
Knowing critical data like these will enable you to do better and earn extra to deposit into your emergency fund.
How Prepared are You for Life’s Unforeseen Challenges?
By following the tips provided to build your emergency fund by $500, you’re assured of a bright financial future in the years to come.
As a bonus tip, it wouldn’t hurt to get an extra source of income. If you feel like you’re not saving enough for your emergency fund, go out of your way to put in something on top. With more and more ways of making income coming up, it’s impossible for you not to get an extra side gig.
Devote your earnings from your second income to your emergency fund, and use your average earnings to cater for your bills and other essential stuff. Meeting unexpected costs can only be achieved by having a secure emergency fund in your portfolio.
In these harsh economic times, there’s a need for setting aside a substantial amount of money either at home or in your bank account. It’s imperatively necessary that you keep some cash aside to cover living expenses of about 3-6 months.
This should be enough to cater for most essential expenses. As you save for your emergency fund, learning on how to increase it should be your primary goal. Sure, increasing it could be a daunting task.
But with dedication, some work and discipline, roll up your sleeves and find ways to stash away $500 to boost your emergency fund. This could eventually make a major difference in your finances.