Having an emergency savings fund should be a top goal in order to be able to cushion an unexpected financial blow without going broke, according to experts.
Still, many people are falling short.
A Bankrate study found just 44% of people are prepared to pay for an unexpected $1,000 expense with cash. More than one-third of people would need to borrow the funds.
The ideal number to shoot for is at least three months to six months’ worth of living expenses, according to certified financial planner Ted Jenkin, CEO at Atlanta-based Oxygen Financial. If you’re more financially conservative, you may want to put a year’s worth away.
Finding that extra income may sound like a high hurdle, especially in an uncertain economy and amid high inflation.
The good news is you may be able to set more cash aside just by changing how you handle the resources you already have.
1. Reduce your monthly bills
Chances are, big savings can be found by reassessing your day-to-day expenses.
Jenkin, who co-wrote a book called “The 21-Day Budget Cleanse,” recommends people take a detox approach to their household budgets.
Look at the 21 largest bills you have — if you have that many — and try to shop around or change them.
Take your bundled internet, phone and cable bill, for example. Ask your provider if there is an opportunity for a better package or rate. Also investigate the other options available through other companies.
“Most people really haven’t taken the time to see where they’re overspending and size up what the difference is,” Jenkin said.
2. Reassess your credit card habits
Credit card balances can cost you north of 20%, if you’re not careful.
The truth is you do not need more than two credit cards, unless you’re a business owner, Jenkin said.
As such, Jenkin recommends starting with what he calls “plastic surgery” — cutting up your cards until there are just two left.
Then, reassess any rewards you’ve accumulated to see how you can turn them into extra funds.
That could include an Amazon gift card or points to help whittle down your credit card bill. Many people have unused perks that they have not tapped into during the coronavirus.
“I don’t think people are looking at it,” Jenkin said. “It’s found money.”
3. Put your money somewhere safe
Even with interest rates still at record lows, a savings account at an online or local community bank remains the best place to make sure you’ll be able to access the money when you need it, Jenkin said.
If you lose your job or start a business, you’re going to want quick access to your cash.
“You can’t afford to put it into crypto or the stock market,” Jenkin said. “Doing that over three or six months is gambling.”
4. Sell what you aren’t using
If you haven’t used something in a year — aside from family heirlooms or holiday decorations — it’s time to sell it, Jenkin said.
“There’s many, many apps and websites to basically sell your stuff,” Jenkin said.
If you’re not ready to part with an item forever — such as an extra car, for example — you may want to consider renting it out instead on a website like Turo.
5. Pick up a side hustle
Generating more money doesn’t have to stop at selling your things; you can also sell your skills, Jenkin said.
Websites like Fiverr will let you list your services so you can generate extra money.
“If you have a hustle, skill or talent, try to earn that extra income to build up a cash reserve,” Jenkin said.