The 5 best ways to build an emergency fund

Making ends meet while also trying to scrimp together savings for college, a house or retirement – let alone a luxury such as a vacation or big-screen TV – can be daunting. But there is one savings goal you should not ignore: an emergency fund.

This cash set aside for unexpected emergencies such as a job loss, major auto repair or medical crisis, is crucial to financial security. No matter if you have the salary of a java software developer or a school teacher, rainy days may come for you.

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“Rainy days come for everyone, whether it’s a broken tail light, a leaky roof or needing to take a week off work to fight the flu,” says Allie Vered, director of the America Saves campaign at Consumer Federation of America. “Maintaining an emergency savings account may be the most important difference between those who manage to stay afloat and those who sink in debt.”

According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2016, 44 percent of adults say they couldn’t cover an emergency expense costing $400 without borrowing money or selling something.

As little as $500 could help you through a financial squeeze, but ideally an emergency fund should cover several months’ to a year’s worth of living expenses. While that may seem challenging, don’t be intimidated into inaction. Set a goal and come up with a plan. Start small, but start. Just $10 a week adds up to more than $500 in a year.

Your emergency fund should be stored in an easily accessible place, but not so easy that you regularly dip into it for everyday expenses. Keep it separate from your checking account by creating a dedicated brick-and-mortar or online savings account.

Here are some ideas to help you start building that emergency fund:

Reduce your bills and expenses

The most obvious path to amass extra cash is to cut your bills and expenses. For example, you could reduce your commuting expenses (gas, car maintenance, tolls, parking) by carpooling, using public transit or riding a bike. Commuting will obviously vary depending on if you live in a city like New York or a smaller community like Harrisburg, Pennsylvania. Or save those bucks you squander daily on take-out by cooking more meals at home, brown-bagging it for lunch, or giving up those things you know are bad for you anyway – soda, snacks, and smokes.

Try shopping around for better rates on auto and homeowners insurance, phone plans, cable and credit cards. Use a list and coupons when grocery shopping to eliminate impulse buys.

Consider ending some of those “invisible” automatically billed subscriptions and memberships you may not even remember you have – magazines, smartphone apps and cable TV subscriptions. Try reducing the number of professional services you pay for, like weekly house-cleaning, car detailing or mani-pedis.

Pick up a side hustle

Another avenue to extra cash is finding a way to earn a supplemental income. If you can swing it and have the time, consider a second job, at least temporarily. Could you become an IT consultant? Rent out a room to a short-term tenant, pet sit or walk dogs on weekends, check out “gig” jobs online or participate in focus groups for cash.

Sell your stuff

Put that “one man’s trash is another man’s treasure” adage to work for you. Clear out your kids’ old toys and bikes, your unread books, dusty exercise equipment and unused power tools. Have a yard sale or sell those items online.

Stash away extra income

Save any windfalls that come your way, whether it be an inheritance, tax refund, raise, yearly pharmacy manager bonus, sales representative commission or birthday check from grandma. That can give your emergency fund a substantial boost.

Remember your change

You may be surprised at how fast collecting loose change can add up. Regularly root through your couch, car seats, pockets, purse and bottom of the washing machine for coins. Set up a jar in your house for daily deposits. Or when you get change from breaking a $5, $10 or $20 bill, instead of spending it, throw it in the jar. When it fills to the brim, shuttle it off into your savings account and start over.

Many banks will also let you round up purchases made on your debit card to the nearest dollar and automatically transfer the extra change to your savings account — Bank of America calls it the “Keep the Change Savings Program.” There are also many smartphone apps, like Qapital, that help you create similar saving schemes.

If you respond well to a challenge, consider trying the 52-week money challenge. Pick a start date. In week one, save $1. In week two, save $2. And so on through 52 weeks, at the end of which you’ll have saved $1,378.

A final tip: Don’t be tempted to use your newfound savings for a payment you knew was coming, such as a car insurance premium or a splurge for an island trip. An emergency fund should not be touched until you absolutely need it. Then it will be a lifesaver.

“It gives you peace of mind knowing that you can afford to pay those inevitable unexpected expenses,” Vered says.

Michele DiGirolamo is a former longtime reporter for United Press International and a freelance writer for

This article first appeared on Money Geek

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