Finding Money to Save for an Emergency Fund

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Finding Money to Save for an Emergency Fund

One of the biggest objections to starting up an emergency fund is "I don’t have enough to set aside for one." But often, you do. Spend a month tracking every cent, and you will probably see where money is slipping through the cracks. Are there any services or expenses you could do without or cut back on? Are you expecting a big tax refund soon?

Some ideas

Doing a Web search on emergency funds can bring up some surprising tips for finding spare cash. Some are harsh and draconian. Others are well thought out and recommended by financial advisors. Here are some of the more common suggestions:

• Treat it as a bill. Add your emergency fund to your regular bills; this will give it a sense of priority. If you need to start small, such as $10 per month, that’s still a good start.
• Unnecessary expenses. Take stock of all the goods and services that you use that are not strictly necessary, such as services you could perform yourself, spur-of-the-moment spending choices, or excessive insurance coverage. After you’ve cut them out, you might try staying in that mindset, but instead putting the money that you would have spent on them into your emergency fund.
• Loose change. Put all loose change into a special jar just for your emergency fund.
• Bonuses or raises at work. If you get a bonus or raise, put all or most of it into your fund.
• Cash gifts. If you get a cash gift for your birthday, a holiday or another special occasion, you can add it to your emergency fund.
• Tax refunds. Due to their size, these are the most likely source of funds and are a good way to begin an emergency fund.
• Adjusting your income tax withholding. If your yearly tax refund is typically quite large, you can adjust your tax withholding so that less is withheld each month; put that difference into your fund so it builds up earnings.
• An automatic savings account. You can set up automatic transfers of money on a periodic basis from one account to another. An advantage of this is that it can save you the time and energy otherwise needed to locate money to save. Just be sure you have adequate funds in your source account to cover the transfer.
• Investment earnings. If you’ve got stocks, bonds or mutual funds that pay regular income, you can divert that into your emergency stash for a while.
• Employee benefits. A new feature in 2024 is emergency savings accounts that are linked to certain retirement plans.

Once you have your fund in place at a financial institution, you can start accumulating earnings on it.