Saving for an emergency fund is on your list of things to accomplish for 2019, but you've been putting it off because money is tight. Even for people who have money to spare aren't saving as they should be. Why? Because they aren't intentional about it.
Here's how to save even if you think you can't afford it.
Yes, you do. An emergency fund is a financial safety net so you don't get crushed by the unexpected events that may happen in your life, such as getting laid off from your job, suddenly needing expensive dental surgery or having to fix the transmission on your car.
Mostly, it's there to help you so you don't have to use your credit cards (and rack up debt) or borrow money from family or friends.
The keys to saving are forming the habit and time. If money is tight, you'll have to start with small amounts, but do it consistently so you can build it up over time.
Despite the fact that money and time go hand in hand, it still won't motivate you to suddenly start saving. A study by Bankrate said that about 20 percent of Americans still aren't saving, despite an improving economy.
Just like dieting to lose weight, saving money is more about setting the right goals and expectations. Once the behavior becomes a part of your lifestyle, it gets easier.
As discussed in the classic best-selling book, “The Millionaire Next Door," building wealth is about creating habits to prioritize saving — consistently. The multi-millionaires described in the book are mostly blue-collar workers who amassed a million-dollar-plus bank account from saving month after month and allowing that money to grow.
But how do you start saving when there isn't much wiggle room at the end of each month?
To help you better understand how to start saving, we'll use Sam Saver with example scenarios. To keep the example fairly simple and straightforward, Sam is single, graduated college a handful of years ago and earns $3,000 after taxes each month.
Here's how he can save for an emergency fund (and how you can, too).
The word “goal" can feel overwhelming but break apart your goal into small ones to make them more motivating. For example, let's say Sam wants to have six months' worth of living expenses, in this case, this would amount to around $18,000. That amount seems daunting to him because it's such a big number.
It would make more sense for Sam to break down that large goal into smaller chunks. His first goal is to start saving, so he sets a smaller goal of saving 10 percent of his “leftover" money at the end of each month.
You need to know how much you're spending and how much money is leftover at the end of the month. Add up your net income (the after-tax amount), then subtract your expenses.
This includes fixed costs such as rent, utilities, car payments and groceries, as well as discretionary spending like restaurants, Netflix, going to the movies and Ubers.
Sam could potentially put $32 into his emergency fund each month. This is roughly 10 percent of the $320.
This sounds like a small number, but remember, the hardest part is actually getting into the habit of saving. You can always incrementally increase your emergency fund contribution after freeing up some money (i.e. paying off credit card debt or earning extra money).
Budgeting tip: Use this handy budgeting worksheet to add up your expenses and income.
Here's the reality: You're going to have to be very mindful of your spending. Your savings account isn't going to fund itself, so figure out where you can make adjustments so you can free up that money.
This means putting limits on how frequently you go to bars, restaurants and ride Ubers. Aim to scale back at least 10-20 percent.
Sam decides he will cut back on going to the movie theater ($25) and Ubers ($50) so he can use that money to throw into his emergency fund. He also opts for running outside, so he can cancel his gym membership ($60).
These adjustments, along with his initial $32, means he could potentially save $167 each month.
Do you still subscribe to cable TV? Even if it pains you to have to cancel, consider the cost savings.
Comcast, the biggest cable provider in the U.S., charges around $50 for its most basic cable package. Multiply that by 12 months and you're looking at $600, an amount that could easily be funneled into your emergency fund.
So, Sam decides to join the 33 million cord-cutting Americans and ditches his subscription so he can funnel the extra $70 into his emergency fund. This brings his monthly emergency fund savings amount to $237, or $2,844 for the year. Not terrible, but at this rate, it would take Sam about 6 years to save $18,000.
Therefore, he needs to incrementally increase the amount he's saving. He plans to throw in any extra income into his emergency fund, including pay raises, bonuses and tax refunds.
If canceling your cable is too extreme, there are other options. Deacon Hayes, the founder of WellKeptWallet.com, says negotiating your monthly bills is one of the simplest things you can do without drastically changing your lifestyle.
Hayes says it starts with picking up the phone:
“Call your cell phone provider and see if they have a lower cost plan. Call your cable company and see if they have a better deal going on now."
He also recommends calling a car insurance broker and ask them to “shop around for cheaper coverage. By just doing this, you could potentially save hundreds of dollars per month to put toward your emergency fund." Use these detailed strategies for how to negotiate your bills.
Getting rid of things you don't use or need is a great way to jumpstart your emergency fund. Two popular apps that are a cut above Craigslist are letgo and OfferUp.
You can easily post your unwanted furniture, clothing and electronics right from your smartphone.
That yearly refund is a chunk of money that can be used to fund your emergency fund. Put it away for a rainy day instead of taking that weekend trip.
Also, assess what your withholdings look like for the rest of the year. If you're having too much withheld, consider talking to a tax accountant. Let them know that your goal is to free up some extra money so you can save more.
We live in a side hustle kind of world. Twenty-nine percent of Americans, or 57 million people, have alternate ways to earn income outside of their primary jobs.
Hayes is a big believer of earning extra money, explaining, “In today's gig economy, you can make money any time of day doing almost anything. You could do small tasks online before you start your 9 to 5 job or drive people around as a ride-share driver at night."
Consider temporarily reducing your 401(k) contributions to the lowest amount that will still allow you to reap the benefits of your employer's match (if applicable).
Remember to set a time frame (i.e. three months, six months), as the operative word for this tactic is temporary. This should not be a long-term strategy because it could negatively affect your retirement fund.
Rent is most likely the largest expense you have each month. Moving to a place with roommates or to a cheaper apartment may drastically improve the amount of money you have left over each month.
Move a portion of your paycheck directly from your checking account to savings each month. That way, you don't see the money sitting in your checking account.
You may be able to do this with your bank or check with your payroll department. Your employer may be able to “split" your paycheck for you so you can designate a portion of it to go directly into your savings.
Build your money-saving habit by calculating your monthly budget, cutting corners where you can, making adjustments and putting extra money into your emergency fund.
Start small and remember to incrementally increase your savings as time goes on.