Considering today's economic uncertainty, you'd think most people would have an emergency fund of some sort set up. However, according to Bankrate's Financial Security Index, more than one-fourth of Americans do not have savings set aside for an emergency situation.
Potential tax hikes, a struggling economy, and the looming possibility of a job loss are all considerations to keep in mind. To prepare yourself, you must start a rainy day fund now--and if you already have one, consider contributing more.
Here are four ways to free up funds to do so:
1. Save on groceries. The average monthly household bill for food is approximately $700, but there are ways to trim this cost drastically.
To slash your grocery expenses, buy extra copies of the Sunday paper and clip multiple coupons. Find out when your grocer doubles its value and shop only on that day. You can also save money by stocking up on items you use frequently when they go on sale and by signing up for your grocer's customer loyalty program, which typically provides you with additional coupons based on your purchase history.
2. Reduce monthly bills. Many monthly service providers have recently introduced new fees. If you've noticed any recently, call the customer support line to find out whether you can have them eliminated. Think this won't make a big difference? If you have a $5 monthly maintenance fee charged on three separate bills, you can save nearly $200 per year by having them removed.
3. Save on gas. While prices have begun to slightly decrease, you should still try to save money on gas. Check out GasBuddy--a mobile app that uses your location to find the cheapest stations to purchase gas in your near proximity.
4. Eliminate credit card debt. The average American carries roughly $7,000 in credit card debt, resulting in more than $1,000 per year in unnecessary interest payments. No matter your level of debt, put a stop to this unnecessary expense now. Freeze your cards, put yourself on a strict spending plan--do whatever you need to do, but be sure to put these debts in your rear-view mirror for good.
Final thoughts. Once you have a significant emergency fund built up, you have to make the right choice as to where it will be kept. Maybe it belongs in an interest-bearing account. Consider a high-interest bank account, or even a CD.
If you opt to place your money in CD accounts, consider laddering them. This means putting a portion in a three-month CD, some in a six-month CD, and so forth. By doing this, you can protect your liquidity and access your money when you need it most. An emergency fund is a must in today's trying economic times; just make sure you can get to your cash when and if you need it.
Do you have an emergency fund in place?
David Bakke writes about money saving strategies, including starting and building your emergency fund, on the personal finance blog, MoneyCrashers.com.
- Banking & Budgeting