6 Clever Ways to Build Up Your Emergency Fund

Coin Dropping Into Piggy Bank

(Image by Gerard Van der Leun, via Flickr.com)

Everyone has emergencies and needs a rainy day fund, but only one out of three Americans has set aside $1,000 or more to cover emergency expenses, according to a recent study from The National Foundation for Credit Counseling.

That statistic is especially grim considering financial advisers say we need three to six months’ worth of expenses saved up just in case. That might be $6,000 to $12,000 — or more — and if you have nothing, it could seem like $1 million. If you’re in this position, don’t be overwhelmed. Start small. Open an account and set a goal to save $1,000.

Here are a half dozen proven and effective ways to build your rainy day fund:

1. Sell Unwanted Stuff

We all have things in our house that we no longer want or need and that we no longer use. Figure out what it’s worth and sell it.

Selling unwanted things has never been easier to do. Ebay is a good place to sell smaller things, and Craigslist is good for larger items. You may have hundreds or even thousands of dollars worth of unwanted items. The proceeds from those sales would look a lot better in your bank account.

Don’t bother with garage sales, where buyers typically aren’t willing to pay much, and consignment shops, which will keep 40% or more of what they receive from the sale of your things.

2. Work More

Maybe you need every penny you earn from your job to pay rent and bills. So take a second, part-time job, and funnel the pay from that job into your emergency fund. If your take-home pay from that job is $100 a week, set it aside, and in six months you’ll have about $2,500 without touching any money from your regular job. After you have a large enough rainy day fund, quit your part-time job if you want.

3. Save All Your Spare Change

You might think this wouldn’t add up to much, but if you mostly buy things with cash, you can save $1 a day by setting aside your change and not spending it. A few times a year, put the money in wrappers and deposit it in your account. Don’t dump it in one of those machines that counts your change, gives you bills and charges you a fee. Do a little work and keep all of it.

4. Investigate

Look for places where money is leaking from your budget. Are you buying food at grocery stores or at restaurants that gets wasted? Do you leave the heat or air conditioning on high in your house when no one is home? Do lights get left on in vacant rooms? Do you buy clothes and wear them only once or not at all? All households waste money. Find out where yours does and put an end to it.

5. Automatic Savings

If you have a little extra money but aren’t disciplined enough to save it, ask for help. Have your bank move money every month from your checking account to the emergency fund, using automatic bill paying plans.

6. Dividend Earnings

If you invest in stocks that pay dividends, it’s a good idea to re-invest the dividends if you don’t need the money for income. If you do, redirect it to your emergency fund.

After you reach your $1,000 goal, raise the goal to $2,000 and then keep going until you reach the equivalent of at least three months of expenses. Not having to borrow money to pay for emergencies will save you money in interest, not to mention give you peace of mind. And you can hardly put a price on that.


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Published February 2, 2012 Updated: December 27, 2012
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