Are you saving money for a rainy day?
Building an emergency fund can be a key component of your larger savings goal — helping you prepare for unexpected expenses or emergencies when they arise — but for many Americans, that’s easier said than done.
Madeline Spencer Orrell works hard to pay the bills and make ends meet, but the 27-year-old has no emergency savings.
“I have a savings account, but it’s almost completely empty,” Spencer Orrell said. “I have a credit card, but I don’t use it much. If something comes up, I just pay with my credit card.”
Financial experts recommend setting aside at least three months’ worth of living expenses in an emergency fund.
“It’s kind of hard to believe that someone in their 20s has that luxury,” Spencer Orrell said.
She is not alone.
According to Bankrate’s annual emergency savings report, one in four Americans has no emergency savings whatsoever.
“Day to day, I feel like my pay doesn’t match up to the actual cost of living,” Spencer Orrell explains. “It’s really hard to pay the bills and make ends meet from week to week.”
According to the survey, inflation is the main reason why many people don’t save, with around 63% saying high prices are reducing their savings.
“You have the power to change the course of your life,” says Nora Yousif, a financial advisor at RBC Wealth Management.
She says building an emergency fund starts with setting goals for yourself.
“If you’re thinking about putting a down payment on a house, think about the financial security and stability it would give your family and how proud it would make you,” Yousif said.
To achieve your goals, start saving for unexpected financial emergencies so that your dreams don’t get thwarted.
If you are living payday to payday, what can you do? Carefully review your spending and eliminate all unnecessary expenses.
“Once you have a comfortable cash flow, you need to make sure you can continue to save – set up a monthly transfer into savings,” Yousif said.
Monthly automatic transfers take the stress out of manually setting aside money each week, and Yousif recommends setting a goal for your emergency savings fund of $10,000.
“Whether it’s automatic savings, a self-funded savings, a bonus, or a weekend hustle, you want to reach your goal as quickly as possible,” Yousif says.
Yousif says even starting with small savings can help build financial security.
“I think another short-term goal is to feel comfortable and OK with putting some of your paycheck towards savings,” Spencer Orrell said.
“It’s really up to us to break the cycle of economic disempowerment,” Yousif said. “Look closely at where your money is being spent, because we all have money drains. It may hurt a little bit at first, but you won’t begrudge money that you don’t spend. And remember, it’s only temporary.”
Building an emergency fund takes time and a lot of discipline, so remember that every dollar you move into your savings account makes a big difference.
Start small and remember to celebrate small milestones along the way to stay motivated.
