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- After an unexpected surgery, I knew I needed to build an emergency fund for myself.
- I started with the goal of saving a $3,000 “baby” emergency fund.
- I followed a five-step strategy and started automating deposits into my savings account.
It's no secret that most Americans lack adequate savings. Some of us may not think about preparing for a rainy day until a rainy day comes.
For me, debt played a big role because I wasn't able to save as much as I would have liked. In 2015, I was motivated to get rid of a high-interest car loan and some credit card balances, but I didn't save much. Then an unexpected surgery showed me the importance of setting aside savings for emergencies.
Yet, going from $0 to $10,000 or $20,000 in savings seemed so daunting. Experts recommend setting aside three to six months of expenses in an emergency fund. That means if your minimum monthly spending is $4,000, you would need to save about $12,000 to cover three months. Saving large lump sums can be motivating, but it can also be intimidating when you're just starting out.
I decided to start with a “baby” emergency fund because let’s face it – we all have to start somewhere. Saving some is better than nothing, and I like to break larger goals down into more realistic milestones. Before you can save six months of expenses, you must be able to save one month of expenses. So here I set my first benchmark.
Here are some key things I did to save $3,000 in just a few months.
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1. Work savings into my budget
There are so many different places your money can go. Before you know it, you may reach the end of another month and realize you don't have enough left to save. To avoid this, I set out to achieve that initial goal and immediately started budgeting for it.
You don't know how much you can save if you don't factor it into your budget. I added a savings category to my budget and contributed as soon as I received my money. This way, there was no time for distractions to pop up and redirect my spending.
2. Cut some expenses to create more cash flow
Reducing expenses can easily lead to more cash flow and financial relief, so this was my next step.
To create my budget, I used a spreadsheet that allowed me to quickly play around with the numbers for each expense category to see what cuts I could afford and how much I would save. (You can also do this in one of the best budgeting apps.)
Suddenly, a $50 cut in grocery expenses, a $100 cut in dining out, and a few canceled subscriptions added up to a reasonable amount. This freed up money that could be redirected into savings.
3. Look for unique additional income opportunities
In my case, I had time to learn a flexible part-time job, but I know some people might not do that. Either way, taking advantage of unique additional income opportunities helped me grow my savings account balance quickly.
I've sold items on Facebook Marketplace like my son's old gaming chair, a mannequin that was currently sitting in my closet taking up space, a few old lamps, wall decor, and other items. Even though I didn't have any really fancy furniture, expensive clothes, or handbags to sell, there was a lot lying around my house that we weren't using. I spent an afternoon gathering these items and then listing them for sale on the marketplace and on sale.
I was working at a web design company at the time and my boss offered the team a bonus if we launched a certain number of websites by the end of the month. This incentive motivated me to reach the goal so I could contribute more to my baby emergency fund.
Any other windfalls I received went directly into my savings, whether it was a tax refund, a credit from a billing company, or birthday money.
4. Earn money on the side regularly
A one-time income boost made me realize that I really wanted to diversify my income and increase my income regularly. Earning extra money is one of the best ways to reach your financial goal faster.
It was difficult for me to find a part-time job because I wanted to be home with my son every day after work. So I used the internet for flexible work that I could do from home and started writing content for companies and helping small businesses manage their social media pages.
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5. Avoid the save-spend cycle
Even though the amount of my emergency fund was small, I wanted to protect it carefully. Sometimes it's easy to fall into the cycle of saving hard-earned money over time, only to spend it on something a few weeks after you reach your goal. Imagine if I worked hard to save $3,000 and then withdrew the money just a few months later to spend on something important. I would have to start all over again.
I know the money in my emergency fund is meant to be spent once. However, by setting strict guidelines, I was able to develop the discipline to keep the money in my high-interest savings account. The guidelines you set for withdrawing savings are entirely up to you.
I decided to classify a true financial emergency as one of three things: a serious medical emergency, a direct threat to the functionality of our home (e.g. major storm damage or something that insurance doesn't fully cover), or a complete loss of income in ours house household.
If the expense didn't fall into one of these three categories, I refrained from touching the money. This allowed me to find other creative ways to cash flow expenses and plan for other future costs, such as car repairs and maintenance.
Additionally, with strict guidelines for your savings, you can build on this emergency fund and grow your balance to the next level over time.
This article was originally published in May 2020.
