A recent study by Bankrate.com shows just how tenuous most Americans’ finances are: More than half of respondents to Bankrate’s survey can’t pay for a $500 car repair or $1,000 medical bill without going into debt.
Financial planners long have advised keeping an emergency fund with three to six months living expenses. It’s a cushion that means when you’re hit with an unexpected expense, you don’t need to borrow from your credit card company at 20 percent interest.
Bankrate’s Jill Cornfield offers some tips for how to build an emergency fund:
- Start small. If your bank account has only a few bucks in it, stashing $15,000 can seem impossible. Start with a small goal, such as $100 or $500. “Just start, and see how great it feels,” Cornfield says. “Once you get to $500, you can get to $1,000.”
- Bank your raise. Wages finally are perking up. The average paycheck rose 2.9 percent in the past year, according to the U.S. Labor Department, and the beginning of the year is when raises traditionally take effect. Instead of blowing the extra money, put it in your emergency account. “People do tend to be prone to lifestyle creep, where they spend more as soon as they get a raise,” Cornfield says. “Pretend you didn’t get the raise, and just save more.”
- Sell some stuff. Craigslist and eBay let you sell collectibles, electronics, furniture and sports equipment. Bookscouter.com lets you find buyers of used books.
- Find a side hustle. Drive for Uber, or take babysitting jobs, or find a part-time job or freelance work — anything it takes to build up an emergency fund.