Imagine if Jeff Foxworthy wrote finance jokes: “You might need an emergency fund if . . . you set up a GoFundMe page to cover the expense of your car breaking down!” It wouldn’t be funny because hard times are no laughing matter.
This is why being prepared is so important and the best way to be prepared is to have an emergency fund where you set aside money to cover unexpected financial surprises. The amount needed depends on your lifestyle, but a good goal to set is enough to cover three months of expenses.
Let’s face it, bad things happen to everyone. Use these five secrets to stash cash for emergencies, even if your monthly budget is already . . . ahem . . . over budget.
1. If possible, use a one-time windfall to get your emergency fund started. If you’re lucky enough to have a birthday coming up or a tax refund due, perfect. Otherwise, make your own windfall by holding a yard sale or selling a few items online.
2. Commit to an easy money-saving practice, like bagging one lunch a week or canceling a rarely-used gym membership or Netflix account, and use the amount you’ll save each month as your monthly savings goal. This will ensure your emergency fund will fit into your existing budget.
3. Place your emergency fund in a new savings account that is separate from your regular checking and savings. Don’t opt to receive an ATM or Debit card. The harder it is to withdraw money from this account, the less likely you are to use it on a splurge purchase.
4. Schedule automatic transfers to your new savings account on the day after your payday. The amount of the transfer should match your monthly savings goal. By paying this account first, you won’t be tempted to spend the money elsewhere during the rest of the month.
5. Define what constitutes a withdrawable emergency. Does a birthday gift to your significant other count? How about your normally scheduled car payment? If you find yourself needing your emergency savings for these types of things, it’s time to set aside additional savings using the same methods described above.
Adam Lucas holds a Finance degree and an MBA from the University of Kentucky. His work has appeared in many major outlets including AARP.org and GoBankingRates.com.