The process of saving money for an emergency fund is rather simple: You transfer money into a savings account and then leave it alone. Automate the process and watch your money grow as time passes. There are a few challenges with this simplistic approach because it also means you must have additional money in your paycheck, or it comes right back out to pay a bill.
The benefit of building an emergency fund goes beyond having money in an account to cover an emergency or unexpected expense; accumulated savings also represents financial security and stability that most of us seek.
While establishing an emergency fund makes sense on paper, very few consumers achieve a significant emergency fund due to the financial sacrifices required. Preparing for future financial needs requires changing the way you will spend today’s income. When expenses and spending surpass income, debt balances are the result. When spending is below income, savings in general, and for an emergency fund can be built.
The good news is that there are simple changes you can make today, which will have a big impact on your ability to save. In a few months, you can find your savings balances grow to $1,000 or more.
How to Successfully Start an Emergency Fund: Overall Principles to Adopt For Success
Awareness of spending habits. Spending money can become habitual and you don’t even think about what you are buying: You throw items in a basket and swipe your credit card at checkout. The first step to more control over your money is making a conscious effort. To pay attention to what you are buying.
Budget is almost a dirty word, yet it is the surest way to discover where money is currently going. Track spending for a month and then break those expenses down by category. Once you know where your money is going, create and adjust the budget for meaningful changes. You are now able to re-direct spending based on your priorities from an active rather than reactive position. Even a rough budget will get you started. Once you have an idea of how much you have to spend in each category, use an app to track spending. Apps not only give you a snapshot of monthly spending in real time, but it will also help you adjust outflows in real time so you can stay on course.
Separate wants from needs. It is easy to justify nearly every expenditure. You see something you want, and you tell yourself, “I work hard, I deserve it.” This self-talk can lead to financial disaster because you convince yourself that a want is a need. It is not a matter of whether you work hard or have earned it. It is not even a matter of whether or not you can afford to buy a particular item: It is all about priorities. When you spend money on things you don’t need and don’t further your financial goals, you are going backwards, financially.
Everyone’s budget is limited by the income you make. This finite amount of money must be divided based on demands (bills) and discretionary income (what else you want). When you splurge on goods or services, something else in the budget gets left out or must be reduced. So the extra latte (even at only $5) reduces the ability to take a vacation, add to savings, pay down debt, or whatever your long term goals may be. Yes, it’s only $5 but that added over the course of the month can be a hundred dollars, which could be earmarked for something more meaningful.
Find budget leaks. These are small spending patterns whichi can lead to significant savings. Use the savings or found money to build your emergency fund. This strategy is one of the easiest ways to increase savings without the feeling of sacrifice. You are identifying spending that has little or no meaning, and transferring that to the long term goal of an emergency fund, which creates financial security. While the immediate pull is not strong and it takes time to build, the long term benefits can be profound.
Tweak how you spend. Another way to find money is to buy differently. Put your strategic hat on and find cheaper ways to get the things you want. For example, if you eat pizza twice a week, find ways to keep the habit but reduce costs. Maybe you can use discount coupons to your favorite restaurant. Order pizza on a day of the week when specials are offered (usually Monday through Thursday). Change to a less expensive restaurant or find a cheaper way to enjoy the pizza, i.e., make it at home. You are still enjoying pizza twice a week, just in a more strategic way that reduces costs. Take the savings and add it to your emergency fund. Every small change and tweak you make adds up.
Set concrete goals and measure results. General goals typically fail because you cannot tell if you are making any progress. You will not save $1,000 overnight, and when you measure progress, you can stay motivated and focused long enough to reach the goal. When you tell yourself you just want to save more, nothing happens. Change that to, “I want to save $1,000 in the next three months.” Now you have information you can measure and know when you have reached your goal. Specific goals allow you to be more focused and pay closer attention to saving and spending habits.
Envision success. Your life is currently on a specific trajectory that has been established based on the choices you have made over the years. Developing new habits requires you to swim against the current to change direction. The good news is that once you are successful in making positive changes, momentum will continue to pull you along the new path. Getting to the new path is the challenge. Vision boards and other strategies help you see success and reprogram your thoughts, which then assist with changing behaviors. Keep at it.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you're just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don't have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here contact-us