In a day when the economy is not as strong as most people would like, there is an even greater than ever need for both individuals and families to have an emergency fund. This is especially important for those who do not have a large income and live from paycheck to paycheck, and are in one-income families. Here are some tips for saving money and how you can put money away to create your emergency fund.
Before any tips are given, it is important that you understand why an emergency fund is needed. Although people do not like to think about it, there is a possibility that many situations could occur where you would need to depend on that fund for short-term survival. Any one of the following could happen unexpectedly: a hospitalization, an accident, an illness, being injured on the job, a natural disaster, job loss, a death in the family, and more.
Start Saving Money by Reviewing Your Monthly Expenditures
Most people have a few ways that money is being spent on things that really are not necessary. Other money may be going to things you no longer need or use, such as gym memberships, the best plans for cable TV, Internet, phone service, etc. These may be able to be downgraded for a less costly plan or eliminated altogether. Frequent eating out is another thing that could be reduced to save more money, as well as money spent for smoking or drinking.
Look over your budget and find ways to cut corners on electric or heating bills, food costs, car costs, insurance costs, and more. Cut out buying new books, DVD’s, and magazines, and get them free from your local public library. Watch out for buying those latest gadgets, too. Reviewing your expenditures, along with good record keeping, will save you money and let you save money for your emergency fund.
Use Credit Cards Wisely and Reduce Interest
More money can be saved if you stop using your credit cards, or at least pay them off in full when you get the bill. When you add up all the interest paid each month on credit card debt, most people will have to realize that owning one (or more) is not cheap. If you are currently in debt, then be sure to pay more than the minimum amounts on each one to save a lot of money in the long run.
Balance Money Saved Between Reducing Debt and the Emergency Fund
As you find more money and new ways to reduce your monthly expenses, you want to take about half of the money saved and use it to reduce your debt. The other half should be used to put into an emergency fund. You do want to build your emergency fund rather quickly, if possible, primarily because you never know if you will need it or not.
Pay Off a Debt and Put Money Toward Further Debt Reduction
As your debts are paid off, do not use them for some new thing you really do not need. Instead, use it to continue reducing your debt and putting money into your emergency fund.
Create New Ways to Save Money
If you do not have a plan to save money, there are several ways you can implement these into your daily life. You could have automatic deductions from your paycheck go into a savings account (your emergency fund) – this works well and you never see the money. Other ideas would be to put all dollar bills (and/or coins) into savings, or directly into your emergency fund; put any bonuses from work into savings; and refinance a loan or mortgage for lower payments and less interest.