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If you haven’t heard, emergency funds are really important. An emergency fund is a separate savings account that has at least six months of living expenses. If you’ve got a lot of debt, it’s okay to start small – start saving towards $1,000 in an emergency fund in case of the unexpected. Once you’re out of debt you can build that up more.
But what if you don’t have debt, but you are on a budget or want to focus on saving for retirement, a vacation, a new car, or anything else? Assuming you have at least a baby emergency fund of $1,000, there are a few ways you could handle the situation.
1. Give to the Emergency Fund First
I know, your upcoming wedding or that new house in the next neighborhood may look a lot more attractive than an emergency fund, but the smartest thing to do is build up that safety net. Emergencies can arise at any point, whether that’s an unexpected layoff, a car engine breakdown, or a broken pipe in your home. Having a solid emergency fund will decrease the stress of that situation.
Pro Tip: Set up automatic contributions to an emergency fund, preferably to a separate savings account you don’t have to watch carefully. Online savings accounts, like Marcus by Goldman Sachs or CIT, have great yields and are perfect for an emergency fund.
2. Save for Your Vacation/Car/House First
Putting money aside for the fun purchases is a lot more exciting and motivating. You have either an exact number or a good estimate that you’re trying to reach, and you’ll have a reward once you’ve hit your goal. Whether you’re looking to buy a new home because your family is growing or if you’re planning that trip to Paris you’ve been dreaming about for years, you are more likely to follow through on saving, or make small sacrifices in order to put money away.
3. Build a Retirement Fund First
Ah, yes. Retirement. This can almost feel like a mix of the first two. It’s fun, because you can envision a time in your life when you won’t be working out of necessity and you’ll be able to do what you like. It’s also somewhat boring, like the emergency fund, because there’s no immediate return. You might have a time you’d like to retire, but that’s not a guaranteed countdown. However, saving for retirement will definitely pay off in the long run, and it’s best to start saving for retirement as early as possible.
Save for All Three, at the Same Time
“What?! But that’s too much to save for! How could I possibly save for all three?” Take a deep breath, it’s okay. There’s a fairly easy way to save for all three at the same time, but it might take a bit of money out of your budget. Make sure you’re not going into debt, and then consider this approach.
- Emergency Fund: Consider this a line item in your budget. How much can you afford to give to your emergency fund each month? Is it $100? Is it $1,000? Is it $10? Whatever it is, commit to building your emergency fund until you reach at least six months of living expenses.
- Fun Savings: This is something you’re excited about and looking forward to, right? Make a small sacrifice, whether that’s making coffee at home instead of going out, spending Saturdays at the park instead of the movies, or any other small change you can make. Put the money you would have spent toward your fun savings. If you’d rather not make sacrifices, find a way to bring in a little extra money on the side. Complete online surveys for money, create a blog with passive income, or find a way to get cash back and sell gift cards and one-time coupons, right here at Checkout Saver.
- Retirement: Many employers provide a retirement savings match program for their employees. At the very least, give to your retirement fund the amount your company will match, otherwise you’re leaving “free money” on the table! If you’re self-employed or if your company does not offer this, make a line item in your budget for retirement savings, just like you did for the emergency fund. The earlier you can save for retirement, the more your money will grow with interest. If your employer offers a match, it’s best to setup automatic contributions to at least get the match (typically 2-4% pre-tax from your paycheck).
Automatic contributions are the key here. No matter what your goal is, setting up recurring automatic contributions (try for every payday) to a separate savings account is one of the best things you can do to achieve your goal.
It is possible to build an emergency fund, save for retirement, and save for fun purchases at the same time. It might take some sacrifice or a little extra work, but it’s certainly possible. Be sure to take a look at how Checkout Saver can help you save more money than any other platform by combining cashback, discount gift cards, and one-time coupons to your online purchases. Let us know how we can help you save for your goals!
PS. Want a super cool trick to earn a little extra cash? Check out this post on selling your coupons for cash.