Can you quickly come up with $1,000 for an emergency – without resorting to borrowing? Two-thirds of Americans would struggle to do so, according to an Associated Press poll released May 18, 2016. This includes almost 40 percent of households earning more than $100,000.
A short-term savings is a vital tool in an emergency preparedness kit. One study by the Urban Institute found people with a small amount of non-retirement savings – $250 to $750 – were less likely to be evicted from their homes or need public benefits, according to an AP story.
It’s possible to save $1,000. Here are some ways to do it.
First, make a budget. The easiest way is to look at what you spent last month in various categories and input those numbers. Many budgeting programs will do that for you. One free program is Calendar Budget.
“I have been using [Calendar Budget] for 5 months and I love it,” Shelly Robertson, of American Fork, Utah, wrote in an e-mail.
Remember also to set aside money for occasional expenses like holidays and car registration fees.
Once you’ve got a budget, review to make sure you’re sticking to it.
“Set aside 30 minutes a week to update everything you've spent for the week,” Robertson wrote.
Next, cut the budget. Peter Dunn, a financial columnist for USA Today, suggested decreasing spending by 10 to 15 percent over time.
“You’ll tighten the budget before you are forced to tighten the budget,” he said.
Financial planner Dave Ramsey had some suggestions for immediate cuts: Get rid of cable or satellite TV. Make coffee at home. Reduce dining out and entertainment expenses. Lower the thermostat during the winter and raise it during the summer. Other ideas include shopping around to get the best rate on insurance and cell phone plans.
Kayleen Chen, a peer mentor at the University of Utah’s Personal Money Management Center, suggested the 50/30/20 rule. Fifty percent of a paycheck should go toward fixed expenses, like house payments and utilities. Discretionary expenses, like groceries, should take up about 30 percent. Twenty percent should go toward short-term savings, an emergency fund, and retirement.
Second, look for ways to earn additional money. This is especially useful for those of us whose fixed expenses take up waaay more than 50 percent of our income.
“If your job allows, overtime is another great way to bring in extra money,” wrote financial planner Dave Ramsey.
If not, consider your skill set.
“Learn new skills that could be turned into a small job such as a piano teacher,” Chen wrote in an e-mail.
Third, deduct savings first.
“If we have automatic deduction … we save automatically. Then we live on what’s in the checking account,” said Ann House, coordinator of the Personal Money Management Center at the University of Utah. “I know if I keep extra money in my checking account, I will spend it until it’s gone.”
Fourth, stash cash.
Whenever possible, I pay with cash. Then, when I get home, I stash the small bills, like $1’s and $5’s, into an emergency fund. House suggested keeping up to $1,000 in cash in small bills in a 72-hour kit.
Years ago, my family had just finished moving when a record Colorado snowstorm stranded us in our home. We had no snow shovel, so a young man offered to dig us out. We ended up paying him an exorbitant amount for a half-hour’s work because we only had large bills on hand.
Finally, and most important, just get started.
“Even as small as setting $5 aside, it’s still a start,” Chen wrote.
What tips would you add to help others know how to save?