A Federal Reserve report concluded that forty-six percent of Americans could not cover a $400 expense out of pocket. Surprise expenses like car repairs or emergency travel, though not regular, are not unlikely. Since these expenses aren’t usual, they generally aren’t factored into monthly or weekly expenses, therefore there’s no way to plan for them besides saving. Here are five tips for saving for such emergencies.
1. Pay Yourself First
Make up an actual budget, like on paper or a spreadsheet. Figure out how much you have after taxes each month (hopefully it’s pretty constant), then add up necessary expenses like rent, utilities, food, payments on student loans, etc. (these things should also be pretty constant). Then after you’ve factored in everything that needs to be paid, pay yourself something, preferably five percent of your net income (although if you can put in more, that’s great).
Put part of your salary each month into a savings account to build up your emergency fund. It is important to have a savings account, which is separate from your checking account. Your checking account is where your paycheck will go in and your expenses will come out. Having a separate account for saving allows you to put money in and then leave it there. If you only take money out of your checking, it’ll make saving easier.
The size of the emergency fund is up to you. For example, if having enough to live on for three to six months makes you feel more secure, make that your goal. The important thing is to pay yourself first after necessities. Then you can spend all your fun money and not feel guilty because it will really be money just for fun.
2. Carry Cash
I know so many of the transactions we do nowadays are with plastic or digital payment methods but carrying good old-fashioned cash can help you control your spending. If you want to limit the amount of money you spend in a day, only bring that much cash with you and only pay for things with cash. You’ll still have your credit or debit card in emergencies, but the literally shrinking amount of money will help you remember how much you’ve spent that day. I used to do this when I was planning to go out with friends. I knew that after a few drinks it would be harder to remember how much I’d spent, but if I only paid in cash, I could stop myself from overspending.
3. Don’t Take Every Deal
It’s tempting when you see a really good deal at the grocery store or online to take it just because it’s a great deal, but it’s important to really think about what you need when shopping and not just what you can get.
For example, take free shipping. Most websites that sell things will give you free shipping if you spend over a certain dollar amount. As I write this, Amazon.com is offering free shipping on all orders over $49. I have just placed something costing $12.99 in my cart, and Amazon has told me that if I add $36.01 of items to my cart, I can qualify for free shipping. Otherwise my shipping will cost $5.48, almost half the initial price of my order. Now because it’s Amazon, I may be tempted to actually put $49 worth of stuff in my cart because, like many people, I can probably find at least $49 worth of merchandise that I want.
On the other hand, I probably don’t need that $49 worth of stuff. Putting off purchasing things that you don’t immediately need can be a good strategy to save on shipping. So, if I don’t need the $12.99 item right now, I can leave it in my cart until I have $36.01 more in purchases that I need and order them all at once. But if I need the $12.99 item now, I should just buy it and be done.
Deals at the grocery store may not be good deals for everyone all the time. If I’m shopping for myself, I might take advantage of the two for one price on a couple boxes of Cheez-its, but not the eight-pound bag of russet potatoes selling for $2.77. The bagged potatoes sell for $0.35 a pound. While that is a little over one-third the price of the individual russets, I’m unlikely to finish off all eight pounds before they spoil. The Cheez-its, on the other hand, have an expiration date six months from now, so I’ll likely eat them before they go bad.
The same goes for other packaged food or non-perishables such as toilet paper or dish soap. Four cans of soup for $2 or 30 rolls of toilet paper for $20 is a good deal because they’re not going to go bad any time soon.
4. Rewards Cards
Rewards cards can be great. Almost every major retail outlet has some kind of reward or loyalty card that they offer you. You don’t necessarily need a loyalty card from everywhere you’ve ever shopped. But for the places that you go regularly like the grocery store or pharmacy, loyalty cards can save you a good amount of money as well as allow you to access deals that other customers can’t. My parents’ grocery card saved us $1200 last year ($300 per family member). That’s significant.
5. Entertain at home
Going out for a night on the town can get expensive. Bars, restaurants and clubs dramatically mark up the alcohol they sell. Per ounce, the alcohol you consume at a bar costs multiple times what you would pay if you purchased the same thing at a grocery or liquor store, so buy your own booze. While going out is fun, you can still get dressed up—or not—to have your friends over to your place.
I remember seeing pictures of my grandparents at cocktail parties given at various homes. Everyone was dressed like an extra on Mad Men, and half of them were smoking, but it looked like they were having fun. Everyone would bring either a canape or a bottle. And since most of the guests were neighbors, they didn’t even need to worry about finding their way home!
