How to Create an Emergency Fund (Even When You Think You Can’t)
By Stephanie McElheny
Here’s a sobering statistic: According to a recent Federal Reserve survey, 40% of American’s can’t cover a $400 emergency expense.
That’s less than most unexpected car repairs or medical bills. What does it mean? That millions of us are just one stroke of bad luck away from serious financial stress.
As we enter yet another month of economic uncertainty and rising unemployment, the need for an emergency fund becomes even more clear, but it might seem even more impossible to create one.
Aspen Wealth Strategies is here to tell you: it’s not. I’ve helped countless people get past the mental block and create a safety net, even when they feel like they don’t have a dollar to spare.
One of the big secrets I’ve discovered is mindset.
I tell my financial planning clients the truth: It’s not always fun. And that’s okay. It takes the most effort just to get started, and to do that, you need a little encouragement, some concrete strategies, and a bit of positive reinforcement.
Here’s how I help our clients tackle the most important savings goal anyone can have: a safety net.
- Make it your top financial priority. This is more important than paying off student loans, saving for retirement, even clearing all your credit card debt. When in doubt, start here.
- Set a reachable goal. Sure, the experts tell you shoot for 6 months of living expenses, but if that feels too impossible, you might give up. Instead, aim for just a month’s worth. Once you reach that goal, aim for 3, and so on.
- Start really small. If it’s $20 a week, well, that’s okay. That’s going to add up. Start there.
- Set up a separate account. Ask your existing bank what options they have to set up an additional account, and make sure those funds stay separate so you’re not tempted to use them. I also like online banks like Ally that offer some interest back to you.
- Don’t totally give up the lattes. Sure, you can save a lot by cutting daily habits, but you also need some pleasure. Use that latte as a carrot instead—if you skip your usual coffee for a few days, treat yourself once or twice a week as a reward for saving more and being mindful.
- Embrace the pain. It’s true, cutting back to save might pinch a bit. If you have to say no to a night out, or you need to eat rice and beans for awhile, do that. The feeling of accomplishment will come with every dollar that goes into that new account.
- DIY to save. Packing a lunch once a week can save $20 right there. Or if you have to have your fancy coffee, invest in a nice French press, good beans, and some fun flavors and make your own; you’ll enjoy the treat and still save money in the long run.
- Pick up a side hustle. Anyone can have one! I love dogs, so I signed up on Rover to watch people’s dogs for cash. I don’t really need it, but it allows me guilt-free money for fun things like vacations. Sell stuff on ebay, babysit, work for grub hub or door dash, whatever will bring in a few extra dollars can set you on your way.
- Build in a reward. For example, if you’re saving $50 a week, earmark $10 of that for something you really want, like a night out, or concert tickets. When you hit your savings goal—say, for one month’s living expenses—take those $10 saves and reward yourself for your hard work. Positive reinforcement works way better than punishment. And if you’ve had the courage to take those first steps toward a savings plan, you deserve it.
What questions can I help with about starting a savings plan? Give me or anyone at Aspen Wealth Strategy a call (303) 421-1113 for a free consultation.