How to Build an Emergency Fund in One Year

One of the key strategies to staying protected financially is to build an emergency fund.

Emergency funds can decrease worry and stress by providing protection against un-budgeted emergency expenses. It can help you from going deeper into debt and will help you look forward to the future without anxious worries.

Learn how to build an emergency fund in just one year below.

Emergency Fund Length

The recommended amount to save for an emergency fund is 3-6 months of your bare-bones expenses. This means if you were suddenly unemployed, what would be the basic expenses you would have to pay for?

The length of your emergency fund should be based off of your circumstances. For example, if you have a volatile and unstable job that has frequent lay-offs it is not only critical for you to have an emergency fund, you may want to have a longer one.

Circumstances such as children, health condition, job stability, business owner status and economic crisis are things to consider when deciding how long of an emergency fund you should have.

Calculating your Emergency Fund Number

Your emergency fund number is made up of critical and necessary expenses. These expenses shouldn’t include any discretionary or non-necessary expenses.

Start by calculating critical expenses such as:

Housing
Utilities
Food
Gas
Healthcare
Insurance
Transportation
Bills

If you are worried about your ability to save 3-6 months of an emergency fund, a good starting point is saving $1,000 and building from there.

Create a monthly savings goal

It’s important to get used to the habit of consistently saving. Saving on a monthly basis will help normalize savings and will create a routine centered around it.

If you get paid biweekly, you will receive 26 paychecks in one year. If you save $38.50 every paycheck you will save $1,001 in one year. Determine your yearly goal, if you get paid biweekly divide that number by 26. If you get paid monthly divide the number by 12.

Cut costs where you can

Review your monthly expenses and analyze where you are spending a lot of unnecessary money. Once you have evaluated your spending habits you can identify areas where you can reduce or cut expenses.

For example, the average cost of cable is $156. Getting rid of cable and replacing it with a streaming service can save you around $84 dollars a month. Saving this amount monthly will get you $1008 of savings per year.

Categories outside of bills such as non-essential expenses are a great start to shaving off some of your spending and expenses.

Save refunds and bonuses

If you’re looking for big wins, saving your refund checks and bonuses are a great way to save larger amounts of money at one time.

Commit to transferring your refunds and bonuses into your savings account right when you receive it. This will make it less tempting to impulse spend on other frivolous expenses.

Use cash to help you stretch your savings

Use cash envelopes to help you budget and save more. Write out your cash envelope categories for your non essential expenses that you may struggle with staying on budget. These categories include entertainment, gas, shopping, beauty, etc.

Determine your budget for each of these category and fill your envelopes with the budgeted amount either each time you get paid or once a month. Spend only the cash allotted to you for that money and replenish your envelope each month or paycheck date depending on your preferred strategy or pay cycle.

Using cash can help keep you accountable and on budget resulting in more savings.

Automate your savings

Some employers give you the option of dividing your paycheck. If they don’t you can simply set up an automatic deposit for your savings account from your banks checking account.

Automating your savings takes the effort out of saving. And as the saying goes, “out of sight, out of mind”.

Check in frequently

Its important to review your spending habits and track your progress often. This will help to keep you on track and aware of what’s going on with your money.

Set a reminder in your phone to check in and update and review your spending trackers and bank accounts status.

Get a side hustle

There are a lot of different options for side hustles nowadays. From ride sharing to taking online surveys, its becoming easier and easier to find part time work.

I turned my passion for attending Zumba classes into a side hustle where I started getting paid to teach Zumba classes. If you like to teach, find ways to tutor. If you are organized look for opportunities to become a virtual assistant.

An additional $100-$200 can go a long way.

Sell what you don’t need

Apps like Facebook Market and Poshmark, are marketplace that allow you to sell new or used clothing, shoes and accessories.

I know several people who have made a side hustle out of reselling good finds from thrift stores.

You can also hold a garage sale or sell your items at your local consignment store.

Make your savings unattainable

Sometimes saving your money isn’t enough. If you struggle with self-control and or are the type to continuously transfer your savings to your checking you should consider getting an online savings account.

Online savings accrue a higher interest and make it harder to get to your money right away. Most purchases are spontaneous and impulsive. Putting your savings online can help curb impulsive spending habits.

I hope these tips will help you jump start your savings. Share your tips on how to build an emergency fund!