Having savings is a financial superpower. It invests you with the flexibility to make major purchases, go on vacation, or take on unexpected expenses without breaking a sweat.
Unfortunately, most people can’t claim these abilities for their own. In the U.S., a staggering 57% of people can’t drum up $1,000 for an unexpected expense. Their neighbours to the north are only slightly better off, with 38% of Canadians unable to come up with $1,000 in a pinch.
Think you’re safe without $1,000 squirrelled away? It just takes one bad day to deliver this kind of bill, and you won’t have any way to handle it. Before you’re stuck dealing with this kind of emergency, check in with this list. It shares money management tips that help you save more money for the unexpected.
1. Pay Yourself First
If you make a budget, there’s a good chance focus on the big bills first. Prioritizing rent and utilities isn’t necessarily a bad idea. However, this strategy can cause tunnel vision on all the spending you have to do in a month — both necessary and discretionary — before you turn to savings.
You’re so focused on making sure you have the cash to afford your bills, UberEats, and that new pair of sneakers that you don’t have any cash left over to save.
The Pay Yourself First (PYF) method helps counter this budgeting mistake by making savings the first thing you “pay”. It moves savings up in priority, making it as important as rent. This way, you can’t order takeout before you save.
2. Pay Down Line of Credit or Credit Card Balances
If you live without savings, you might be used to relying on a line of credit as a backup safety net. You can tap into this account as soon as an emergency lands in your life and pay off the expenses later.
How much time you take can impact your savings. If you only ever rely on the minimum payment, you’ll stay in debt longer, and you may accrue more interest on top of these purchases.
How these minimum payments work depends on your lender.
If you have an account with Fora, an online lender, your minimum includes interest charged to your principal balance for each day of your billing cycle and a contribution towards your principal. That’s why Fora recommends you pay as much of your line of credit as possible.
The sooner you bring down your balance to zero, the sooner you can stop paying these bills. But wait—before you celebrate this win with a splurge, consider saving it. You can use the cash that usually goes towards this account and sink it straight into your emergency fund.
3. Focus on the Small Stuff
Building an emergency fund out of nothing can be a daunting goal. Most financial experts recommend saving as much as six months of living expenses in this account. How can you possibly save that much, especially if you live on a small budget?
As the saying goes, Rome wasn’t built in a day. Like all good things, savings take time to grow — and usually from small, incremental contributions.
Go through your budget with eagle eyes, tracking each expense—even if they don’t cost a lot upfront. Their cumulative expense might surprise you!
Take, for example, your subscriptions. If you’re like most people, you have more than just Netflix. You also have a gaming service subscription, music streaming, TV, and a mobile phone. Add them all together, and the average person spends $273 every month on these services!
Bottom Line
If every dollar counts, even minor changes to your spending can amount to big savings eventually. Try the PYF method on for size, focus on paying down your line of credit, and cut small expenses. These tips can help you save more in an emergency fund.
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