'Carving Out' an Emergency Fund

Having an emergency savings fund can provide a much needed safety net if unforeseen problems should arise. If you don't already have a financial 'cushion' to fall back on, you should strongly consider building one. The first step is to sit down and decide just how much you'd like to save and, just as importantly, how much you can actually afford to save. For instance, do you think that a thousand dollars would be sufficient for your needs? Or, would it more preferable to set aside enough money to carry you through a six-month period should you become ill or lose your job? The choice, of course, is yours. Either way, once you make the commitment, you'll come to realize that the benefits of having an emergency fund can be immeasurable.

With the economy in a recession, you may be wondering just how you could possibly build up an emergency fund now. As the cost of living rises and income staying level (if not declining somewhat), the practical aspects of saving for such a purpose could indeed be a bit difficult, but certainly not impossible. Because many people are living from paycheck to paycheck, often every dollar is accounted for. Nevertheless, be conscious to remember that wherever there's a will, there is always a way. As a matter of fact, you'll come to realize that there are a few methods whereby savings can actually be accrued in a highly efficiently manner and with relative ease. If you'll follow some of these tips you may be able to put aside a significant chunk of money each month, and by the end of the first year you'll have enough savings on hand to cover all but the most major unexpected situations that crop up.

Most people today work for companies that have the capacity to offer automatic electronic deposit of their paychecks directly into their checking- or savings accounts. Usually, the amount can even be split up and deposited into separate accounts. For example, you could choose to have $50 of your pay deposited into a separate savings account. If you're paid bi-weekly, that amount can yield $1300 over the course of a single year. If you can't afford quite that much, even ten dollars a week ($20 per paycheck) will give you $520 in a year's time. This is a fairly 'painless' way to start building up your emergency fund. After a few paychecks you won't even notice that small amount anymore. The point is that there are many things you can do to reduce the amount of monthly expenses that will allow you to put aside a few dollars here and there.

Make a list of all your monthly household bills, just as if you're making out a household budget. In the second column, list your income. Now, you can approach this in one of two ways. You can either add a dollar amount to the monthly bills, labeling it as "emergency fund," or you can determine how much money you have left over after all the bills are paid and then choose an appropriate amount that you'd like to put away.

Here are a number of specific tips that will help you 'carve out' the money you need to build up your emergency fund:

Save money around the house

  • Winterize your home, and plug any cracks in the attic or basement.
  • Check for drafts coming through windows or around doors, and ensure the home is well insulated.
  • When you leave a room, turn off the lights.
  • Unplug appliances when not in use.
  • Invest in an energy-efficient ceiling fan.
  • Ensure that your air conditioning and/or heating filters are cleaned or replaced regularly.
  • Purchase energy-saving light bulbs. Though they're a bit more expensive than regular incandescent bulbs, they last much longer and use significantly less power.
  • Run your washer, dryer and dishwasher only with full loads.

Save money on your phone bill(s)

  • Eliminate long distance service on your landline and use your cell phone instead.
  • If you don't need call-waiting or caller-ID on your landline phone, have your provider remove these money-wasting services. Additionally, you can eliminate text messaging and any other of your cell phone's services that you don't use.
  • Instead of calling 411 for information (for which you're charged a fee), use 1-800-GOOG-411. It's toll-free from any phone.

Save money on groceries

  • Clip and use coupons from newspapers, local flyers and online websites.
  • Buy in bulk, especially when items are on sale.
  • Utilize grocery outlets that sell bread and cake. Other outlets are available that sell bundled meats.
  • Eat out less often. Eating meals at home is much less expensive.
  • Take your lunch to work, and prepare lunches for the kids to take with them to school.
  • Substitute water for sodas. It's both cheaper and healthier.
  • Buy store-brand items. They're typically just as good as the big brand names.

Save money by changing your habits

  • If you're a smoker, quit. The money you could save in a year on this item alone is staggering. Depending upon how heavily you indulge, you may be 'burning up' several thousand dollars annually. Besides, the health benefits that you'll reap are more valuable than any amount of money.
  • If you keep beer, wine or liquor in the house, cut back on your consumption. This is another area where substantial a savings can be realized.

Save money by 'going green'

  • One way to simultaneously save money and also become active in cleaning up and maintaining our environment is to make use of homemade cleaning products. There are many websites available that are devoted to this cause; and as an additional side benefit of 'going green,' you'll be ridding your home of caustic and toxic agents that could pose a health hazard to your family and pets.

Save money by recycling

  • Instead of throwing away used those soda cans, bottles, cardboard and other items, take them to your local recycling center and receive compensation for them. Remember, every little amount that you add to the pot will bring you that much closer to your financial goal.

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