5 Realistic ways to build your emergency fund

Peace of mind to get you out of most financial scrapes

Why set aside an emergency fund?

Life gets in the way of plans sometimes — and that inevitably means an unexpected expense. Build an emergency fund to create a financial cushion to keep you afloat without relying on a credit card (more debt, ugh!) or borrowing from a friend, in case you get:

• Laid off or fired
• An unexpected health or medical expense
• A flat tire or a major car trouble

How much should I save?

Most experts advise you to save up to three months’ worth of bills. (Yikes!)  It’s such a large number for most of us who live paycheck-to-paycheck that we ask ourselves, “why even bother?”

Roost looks at the world a little differently. Start small and stash away a smaller sum to give yourself a cushion and build confidence. Even a few extra hundred dollars will give you peace of mind and get you out of most financial scrapes. Then, add to it as you can.

So, let’s say your goal is to set aside $350. Here’s an example of how to put aside a few hundred dollars in two months’ time with a bit of effort. 

How do I build an emergency savings fund? 

3. Move money into your savings account automatically

When you are living paycheck-to-paycheck (or close to it), it’s hard to imagine putting aside any money into savings. Try implementing auto-deposit on $5 of every paycheck. It adds up.

You can do this through your employer to automatically deduct it from your paycheck. Or, your bank can automatically take it from your checking to your savings.

If you are still using a crappy bank that charges you for a savings account, then change banks. We like newer banks like Chime that don’t have minimum balance requirements, give you free overdraft protection, automatic savings features, and 2-day early pay with direct deposits. 

4. Keep the change

Look for a card or bill pay that automatically rounds up transactions to the nearest dollar and transfers the money to your savings account. You’re less likely to notice a few cents gone, while each transaction adds to your emergency fund. 

5. Find a small or temporary cut to make in your budget 

Sometimes there are little cuts in our budget we can make (or at least make temporarily) that we’ll barely notice. For example, cancel that extra app subscription you barely use or download a grocery store coupon next time you shop to save a few bucks a week.

You can also conserve your heat and electricity bills for the month. Savings add up — even finding an extra $15 adds to your total emergency fund. 

Bonus tip! Save part of your tax return

For a big boost to your emergency savings, set us aside half of your tax return refund. The average individual income tax refund in 2018 was $2,881. If you set aside even a quarter or half of that amount, it’s a big boost to your emergency fund.

We know, this may mean skimping a bit on your upcoming vacation with friends, but you’ll still have enough to splurge on something fun, and with money set aside, you’ll know you’re ready for that rainy day if and when it comes.

Which comes first?  Emergency fund or paying off debt?

Your emergency fund should come first. That is after you cover your immediate obligations like rent and monthly expenses.

1. Immediate living requirements — rent, utilities, and food
2. Hard monthly expenses — car and minimum debt payments
3. Emergency fund — start smallish and grow
4. Then, debt.  

You’ll reduce stress significantly  — and an emergency fund will help you get out of a tough situation and prevent you from borrowing more. Any leftover money after that goes towards your debt. 

When can I use the emergency fund?

Set a definition or guideline when you’ll let yourself use your emergency savings fund. Not every unexpected expense is an emergency. But, a car repair, medical expense, or other financial shock is a good example — especially if you have to go into debt to cover it otherwise.

You don’t want your one-time expense to grow into a significantly larger sum with interest and fees. If you spend down what’s in your emergency savings, just work to build it up again. You’ve got this!