We all know that life can be unpredictable — and when it comes to finances that it’s best to be prepared for the worst. Enter the emergency fund — money we put away for unexpected emergencies that’s often referred to as a “rainy day fund.” It’s best kept in a savings account, and if we’re wise about it, we contribute to it as often as possible and touch it only when we have to.
But what’s the best way to build one? There are several effective tactics for accruing emergency savings, and the best approach for your own situation will likely depend on your personal preferences, your financial realities, and your level of monetary self-discipline.
No matter what our situations, most of us can take baby steps toward building and growing an emergency fund. If you’re looking for ways to bulk up your own emergency fund, consider these six creative tactics for putting money away for a rainy day:
1. Automatic recurring transfers
This tactic is a great way to get into the habit of saving, and over time the “missing” money will become less and less noticeable. The idea is to set aside a certain amount of money from each paycheck — choosing a set amount that you can comfortably spare — and put it straight into savings on or around payday.
2. Keep the change
While this tactic may not build a big emergency fund quickly, it’ll definitely add up over time — and as they say, slow and steady often wins the race. When you get spare change after making a cash purchase, or even $1 and $5 bills after breaking a larger bill, drop it into an empty jelly jar or coffee can at home. When the jar or can fills up, take the funds to your bank and deposit them into your savings account.
3. Put away windfalls
We all come across unexpected or otherwise extra money on occasion, whether it’s thousands of dollars in a tax return or $20 in a birthday card. While it might be tempting to hit the town, do some splurge spending, or take a vacation with the windfall, try putting a sizable portion — or even all — of the money away in your emergency fund.
4. Add in the extra
When you have extra money left in your checking account at the end of a pay period, consider putting the surplus into your emergency fund. After all, you’ll have the benefit of a full paycheck’s worth of new funds in your checking account, so you will be able to spare some money for savings.
5. Trim the fat
Most of us can find room for cutbacks in our budgets, whether it means dining out a little less often, going without that second or third video-streaming service, carpooling to work, or even brewing our own coffee instead of buying a daily cup at the coffeehouse.
6. Let your money work for you
When you put your emergency funds into a high-yield savings account or a money market account, it will begin to grow on its own, even without you making additional deposits. And, of course, as more and more time passes (and interest accrues), you’ll begin to see compound interest — meaning you’ll be earning “interest on the interest” from your savings.
This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, other advice or to imply that a particular United Bank product or service is available or appropriate for you. For specific advice you should contact a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.
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