Not having some money on hand for emergencies is definitely a problem.
- Your emergency savings should be able to cover several months’ worth of essential bills.
- If you can’t manage a $400 expense out of the blue, it’s a sign your savings need work.
The monthly budget you create should account for all of your predictable ongoing expenses. Those include your rent or mortgage payment, food, utilities, and car payments.
But what about those expenses that pop up out of the blue? You never know when your car might break down, your heating system might malfunction, or your ankle might twist, landing you in the hospital with a costly ER bill.
That’s why it’s so important to have a solid emergency fund. That way, you can tap your savings when unplanned bills arise rather than fall behind on your obligations and end up in debt.
But in a recent survey by Self Financial, 15.5% of US adults admitted that if faced with an unexpected $400 expense, they would not be in a position to pay that bill. If you’re in a similar boat, then it’s imperative you take steps to boost your savings right away.
You need better protection than that
It’s important to have an emergency fund with enough money to cover at least three months of essential living expenses. Why so much?
While the purpose of that money is to cover unplanned bills, it should also be able to tide you over during a period of unemployment. The COVID-19 outbreak taught a lot of people the hard way that job loss can happen at a moment’s notice. And while workers who are let go through no fault of their own are generally entitled to unemployment benefits, those generally don’t pay enough to replace anything close to a full paycheck.
That’s why you need to take savings matters into your own hands. And if you don’t have enough money in savings to cover a $400 bill, it means you have some work to do.
How to build emergency savings quickly
Now that you’ve had your wakeup call, it’s time to make boosting your savings a priority. The first thing you ought to do is take a look at your budget and see where there’s room to cut corners.
Maybe you can get a roommate so your $1,200 monthly rent shrinks to $600. That could help you make nice progress on your emergency fund.
Similarly, you might be able to replace your more expensive cable plan with a lower-cost streaming service. Doing so won’t free up as much money as slashing your rent in half, but it’ll sure help.
Next, think about getting yourself a second job temporarily. There are plenty of flexible side gigs that let you make your own hours, so it pays to explore your options. If you’re able to earn an extra $100 a week, you might have a complete emergency fund within a year.
Finally, be sure to bank any windfalls that come your way. Have a tax refund in flight? Sticking it into savings is the way to go if your situation is such that you couldn’t cover a $400 expense on the spot.
Surprise expenses can be a huge burden — but it’s important to set yourself up to be able to handle one. If that’s not the case, do your best to build more savings as quickly as possible — before the need to raid your bank account arises.
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