5 Ways To Build an Emergency Savings Fund and Enhance Your Finances

5 Ways To Build an Emergency Savings Fund and Enhance Your Finances

financial literacy emergency savings fund
(Image: iStock.com/andresr)

The COVID-19 pandemic reaffirmed why having emergency cash savings should be a top concern for many people, including Black Americans.

A sudden and unexpected crisis, COVID made it harder for those already struggling to save before it hit and tougher for those with savings to hold onto their money.

Regardless of your financial status, some experts recommend that you have around three to six months’ worth of money stashed to cover basic living expenses. However, data from the Federal Reserve reports that 36% of Americans don’t have enough cash to cover a $400 emergency. That finding is based on a report from The Ascent. That same report, citing data from a Bankrate survey, revealed that “51% of Americans as of mid-2021 had under “three months’ worth of living expenses in their emergency funds.” And some 25% declared they had nothing in such savings.

To make matters worse, draining forces like inflation—at its highest level in four decades—soaring gasoline prices, and today’s fragile stock market, make it even more difficult for many to build savings to cover an unexpected event such as an untimely job loss, large medical bill, or costly car repair.

On the plus side, an emergency savings fund can help you better manage bills despite a financial crunch and prevent you from taking on more debt, such as credit card usage, to cover expenses. Observers report several steps people can consider to help build an emergency fund.

1. Start by eliminating bills where you can

Seriously ask yourself what areas you can cut to save money. For instance, perhaps you can stop paying for hundreds of cable channels you hardly ever watch. Instead of you and your family eating out four to five times a week, possibly trim that to once every seven days. Any savings you can create from your monthly budget gives you more cash to invest in an emergency savings fund.

2. Consider boosting your savings

An emergency savings effort often is referred to as a “rainy day” fund. You can potentially build it up by making incremental increases that you might not even miss. Say you set aside $200 from your monthly paycheck for such a contribution. By adding, for example, $10 or $15 weekly to that fund, you can boost the amount to $240 or $260 in a four-week period. Another way to look at it: By adding just adding $20 weekly,  you build a war chest of $1,000 that can be added to your fund.

3. Set up a budget

Establishing a budget can help you monitor what money you generate monthly and what is being spent. Having such a financial plan can help you better see where you are spending money and help identify ways to possibly cut costs. This site and another here offer insight on how to create a budget.

4. Avoid tapping into the emergency fund

Try your best not to pull money from this fund. Some observers say it should only be done in life-changing circumstances like covering an unexpected medical cost. Also, put the money into an accessible but not often used account. For instance, a credit union where you don’t regularly bank might be an option to consider. You might want to avoid online accounts where money can easily be transferred or long-term certificate of deposit (CD) accounts you cannot use until a specific time.

5. Look for other money-making options

Consider generating more money by selling yourself. Sites like Fiverr and MarketerHire can potentially help you pick up new work to earn more cash. Other sites like Care.com and TaskRabbit are options as well. Observers contend utilizing a skill, talent, or side hustle could help you build wealth for such purposes as an emergency fund.