Yahoo Finance Emergency Fund: 5 Ways To Start Contributing Again
During these times of inflation, consumers have been forced to rethink how they handle their money. Unfortunately, with prices skyrocketing, many can barely make ends meet — let alone stash cash away for unexpected expenses.
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In March 2023, a GOBankingRates survey polled 1,056 Americans aged 18 and older, and approximately 32% of respondents said they haven’t contributed to their emergency funds as much amid rising inflation. If you’re part of the 32% of Americans who have neglected their rainy-day funds, you’re not alone. However, in times like these, it’s more important than ever to have a financial safety net to fall back on.
How To Get Back Into the Habit of Saving Despite Inflation
Inflation is here, but that doesn’t mean you should stop contributing to your emergency fund. If you haven’t been prioritizing your savings in the past few months, don’t fret. Here are some actionable steps to get back on track.
1. Automate Your Savings
Have you ever wondered why Steve Jobs — one of the most iconic entrepreneurs — always wore black? Rumor has it that it was his way of reducing the number of decisions he had to make so he could focus his energy on other important tasks. You can apply this exact strategy to your finances and beef up your emergency fund by automating your savings.
By automating your savings, you can contribute money at regular intervals to your account without making a conscious decision every time. It’s the perfect way to outsmart decision fatigue and achieve your financial goals effortlessly.
Here’s how it works: Set up a pre-determined amount to be automatically transferred to your savings account every time your paycheck hits your checking account. For example, $200 every two weeks. This way, you won’t be tempted to spend that money elsewhere and can build a cushy emergency fund without lifting a finger. Consider parking your emergency fund in high-yield savings accounts like Ally’s Online Savings Account so that inflation doesn’t eat away at your savings.
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2. Set a SMART Goal
According to a study by Dominican University, people who set specific goals and took goal-driven actions were 33% more likely to achieve them than those with unwritten goals. So, it makes sense why many swear by the SMART goal framework. In short, SMART stands for specific, measurable, achievable, relevant and time-bound. Here’s how you can get back into contributing to your emergency fund with the SMART acronym in mind:
Specific. A specific goal is clear and well-defined. For example, rather than saying, “I want to save money,” be specific and say, “I want to have $10,000 in my emergency fund.” Note that most experts recommend saving at least three to six months’ worth of expenses in your rainy-day fund, so feel free to adjust the target amount depending on your monthly expenses.
Measurable. A measurable goal can be quantified. In other words, you must be able to track your progress over time. For example, if your goal is to save $10,000 in two years, the balance in your savings account must increase by at least $416 per month.
Achievable. An achievable goal is one that you can realistically reach. So, if you aim to save $416 per month, ask yourself if it’s attainable. If not, adjust your goal to a more realistic amount.
Relevant. A relevant goal makes sense for your lifestyle and your financial situation. Since having an emergency fund can be a lifesaver if a financial emergency strikes, it’s almost always a relevant goal.
Time-bound. A time-bound goal has a deadline so you can hold yourself accountable. In this example, the goal is to save $10,000 in two years, which gives you a clear deadline to work toward.
3. Generate Extra Sources of Income
Saving for a rainy day can be challenging if you’re on a tight budget. After all, there’s only so much you can cut back on without sacrificing your quality of life.
One way to continue contributing to your emergency fund during inflation without pinching pennies is by generating an extra source of income — whether that’s by offering freelancing services, selling candles, waiting tables or driving for Uber. According to a recent survey by Insuranks, nearly all working Americans (93%) have some sort of side hustle to keep up with rising prices during inflation.
Remember, don’t get caught up in lifestyle creep as your income increases. Keep your expenses the same by using a budgeting app to track your expenses so that you can allocate extra funds toward your savings instead of unnecessary purchases.
4. Save Your Tax Refund
As of March 17, 2023, the IRS reports the average tax refund amount to be $3,019. While using this windfall to plan a dream vacation may be tempting, think long-term instead.
Assuming that your emergency fund goal is $10,000, you can reach 30% of that amount just by saving your tax refund instead of splurging it. So, if you’re serious about building your emergency fund, transfer the tax refund to your savings account as soon as you receive the direct deposit or physical check from Uncle Sam.
5. Celebrate Small Wins
As Teresa Amabile and Steven Kramer explain in ‘The Progress Principle,’ celebrating small wins can raise intrinsic motivation and make you more likely to achieve your goal. Plus, celebrating small wins helps break down your large goal into more manageable steps, making it less overwhelming.
So, if you’re working toward building an emergency fund, remember to pat yourself on the back along the way. For example, whenever you reach a certain savings milestone or successfully stick to your monthly budget, treat yourself to a self-care day or dinner at your favorite restaurant.
Consistency Is Key
If you don’t have much in your emergency fund right now, don’t be discouraged. It’s never too late to start saving for a rainy day. As long as you stay committed to your savings plan and avoid dipping into your emergency fund prematurely, you’ll eventually have enough money set aside to weather any financial challenges life throws your way.
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This article originally appeared on GOBankingRates.com: Emergency Fund: 5 Ways To Start Contributing Again
