Everyone needs a contingency fund. A pool of money to fall back on in the case of an emergency. Most advisors recommend a contingency fund of three to six times your monthly income. Seriously? If you had that kind of money in the bank, you wouldn't be living from paycheck to paycheck.
That doesn't mean you don't need some type of emergency fund. If you're struggling to pay off debt, try saving $1,000 for a starter fund. Everyone needs an emergency fund because you never know what's going to happen.
Unexpected car repairs or medical expenses can just add to your debt. If you have an emergency fund, you can cover the costs without adding to your debt. The problem is how to save for that fund if you have no extra money?
To save $1,000.00 in 2020, you need to save about $20.00 per week. That might be a stretch, so pick a number, even $1.00 a week as a start. You may be surprised at how easy that is, and it will start building a savings habit.
Cut Fees and Recurring Charges for your Contingency Fund
Look at some of the following to see if you are paying unnecessary fees or for services you don't use. By cutting some of these costs, you can put more money toward your contingency fund.
- Subscription Services. How many newspapers, magazines, or smartphone equivalent apps are you paying for? Why are you paying $5.00 a month for a news subscription when you can find the same information for free? It may not display on your phone automatically, but multiply the number of apps by the monthly charge to see how much you can save by dropping one or two subscriptions.
- Streaming Services. How many streaming services do you pay for? Netflix, Hulu, Disney? Do you really need them all? Again, total up the number of services and the monthly cost. How much could you save if you dropped just one?
- ATM Fees. If you're paying to use another institution's ATM, stop. Either find a bank that doesn't have ATM fees, or drive to your bank's ATM.
- Late or Overdraft Fees. Pay bills on time and make sure you have money in your account to cover any payments you make. Take a look at the amount of late or overdraft fees you've paid in the last year.
Fast Food, Coffee and Groceries
How often do you buy a cup of coffee or a soft drink? Once a day? Once a week? Depending on where you buy your drinks and how often, you could easily save $1.00 a week. You might be able to save $20.00.
The same with fast food or dining out. How often do you eat out or go through the drive-thru? If you are buying your lunch, try bringing it to work. It will save you money, and it may improve your health. A quick swing around the drive-thru can cost more than $5.00 just for one person. If you have a family, the cost is even more.
Groceries seem to be the slush fund when budgeting. When you need a little extra money to cover a bill, do you think I'll take it out of the grocery money? Maybe if you lowered your weekly grocery bill by $5.00 or $10.00, you could build that contingency fund faster so you wouldn't need to rob the grocery money to cover an unexpected bill.
It's easy to get in the habit of stopping by an ATM that charges a fee or buying lunch every day. Without meaning to, you are spending money you don't need to. Now is a good time to revisit old habits so you can start building that contingency fund. You'll feel better knowing you have money in the bank for those unplanned expenses.