Home repairs can be expensive. In addition to having a home warranty, learn easy ways to begin creating an emergency fund with these tips, even on a tight budget!
When something unexpected happens inside your home, can you foot the bill? In 2016, the Federal Reserve Board asked survey respondents how they would pay for a $400 emergency. The most shocking answer? A whopping 44 percent of respondents said they would have to borrow the money, sell something to cover the cost, or — here’s the kicker — they wouldn’t be able to come up with the $400. Four hundred dollars! Are you in the same boat? No matter how tight your budget is, it is possible to set some money aside. Learn how to build an emergency fund by following these money-saving strategies.
1. Assess What You Already Have
When it comes to learning how to save money on a tight budget, you must start by assessing what you already have, and — in particular — what you don’t need. Consider selling those unnecessary/unused/haven’t-touched-them-in-several-years items in a yard sale or on an internet “marketplace,” such as eBay, Craigslist or Facebook, for some quick cash that you can put aside.
2. Evaluate Current Budget and Slash Where You Can
Next, take a long, hard look at where your money actually goes each month. For monthly bills, try saving on your electricity, such as your cell phone, cable and internet service, try calling the companies to see if there are more economical options available that you can switch to. For credit cards with revolving balances, ask the credit card companies if you qualify for lower interest rates. If a large chunk of your money goes toward dining out at restaurants, consider challenging yourself to eat more meals at home. You’ll be surprised at how quickly those savings will add up.
3. Set Your Goals and Make a Plan
After you’ve sold your unwanted items and reduced your recurring expenses, it’s time to set a savings goal. Experts recommend having between three and nine months’ worth of expenses set aside in an emergency fund, but don’t let the thought overwhelm you. Instead, think about setting a S.M.A.R.T. goal: one that is Specific, Measurable, Achievable, Results-focused and Time-bound. For example, if you want to start with that theoretical $400 emergency, you can make your goal to set aside $35 a week over the next 12 weeks. If you stick to your plan, you’ll actually end up ahead of the curve with $420! If that goal is too tough to achieve, consider spreading out the timeline. For instance, if you only save $10 per week for a year, you’ll end up with over $500 in your savings at year’s end!
4. Set Up Separate Accounts
The money that you’re racking up won’t be very useful in an emergency down the road if you spend it as soon as you get it, so consider treating your emergency fund differently. Rather than having cash in a drawer in your bedroom or your extra money deposited into the checking account that you use on a daily basis, put it in its own savings account. That way, it will be out of sight, but you’ll have access to it when you truly need it. If you also think of your emergency fund as a bill that you have to pay each month, you’ll see the amount grow in no time. The best part? If it’s in a savings account, it will accrue interest while it sits — making even more emergency fund money that you didn’t have to work for!
5. Stick to Your Budget
This step will require a bit of self-discipline, planning and pacing. Many homeowners make the mistake of keeping track of the income and expenses in their heads or on random sheets of paper, but the best way to stick to a budget is to have it documented where it can be consistenetly referenced. Another easy way to help maintain and stick with your budget is through couponing and bargain shopping. Check out more budgeting tips for a tighter household budget.
Bonus Tip: Pay to Save
What’s one of the biggest blows to a homeowner’s finances? A large appliance breakdown. And what’s almost inevitably going to happen in a home at some point? A large appliance breakdown. Although it may seem counterintuitive at first, since you’ll be paying a monthly or yearly amount for the coverage, a home warranty can truly protect your budget when it comes to those breakdowns. Consider paying a little now to save big in the future when those breakdowns happen.
Related: Money Matters: Budgeting for Unexpected Home Repairs and Expenses