Life has a way of throwing curveballs. An emergency fund makes it easier to handle them.
An emergency fund is a must-have at any time. But it's especially crucial when the economy is as rocky as it is now. Putting money aside will make it easier to weather storms that may come your way -- whether that's a big medical bill or a sudden layoff -- without turning to high-interest credit card debt.
Experts recommend having several months of expenses in reserve, but that can seem impossible for many of us, especially when high prices are already stretching our budgets thin.
So what can you do instead? Rather than letting a lofty goal discourage you, focus on doing what you can do right now. Any emergency fund is better than none, and every dollar you put away now can grow over time in an account like a high-yield savings account.
Read more: I Write About Savings for a Living. 7 Insider Tips I Share With My Friends
✂️ Trim your expenses
The best way to start saving more is by spending less. Here are five practical ways to reduce your costs and free up money for savings, even if things already feel tight.
- Cancel some subscriptions. Many of us pay for subscriptions we rarely use, whether that's a streaming service or a gym membership. And because these costs are often automatically deducted from our accounts, it can be easy to overlook them. Take some time to review your bank statements and see what you can cancel. A budgeting app like Rocket Money can help you find subscriptions and even cancel them for you.
- Negotiate your bills. You might be surprised by how willing service providers are to work with you to keep your business. From your internet to your car insurance, it pays to contact the companies you're paying and see what they can do to help you save. AI can help you by providing scripts and tips to boost your chances of success. Or, an app like Rocket Money can do the work for you.
- Fuel up for less. Gas prices remain high. Paying cash for gas and these other tips can help you save at the pump.
- Meal plan. Combat high grocery prices by being strategic about what you buy. Planning your weekly menu before you shop lets you take advantage of sales and use up ingredients you already have on hand. And it doesn't have to take a ton of time; AI can make it a breeze.
- Slash your phone bill. J.D. Power found that the average wireless bill is $141 a month -- a hefty sum of money, considering some of the best cheap phone plans are less than $20 a month. Look at the features you’re paying for and what you’re actually using. If you don’t need unlimited data and the fastest speeds, there are plenty of cheaper options.
🤑 Generate extra income
Upping your income is another way to put more toward savings. Here are some ways to do it:
- Sell your stuff. Your unwanted stuff could be valuable to someone else. There are loads of ways to sell your old electronics, clothes, sporting goods and other items. Take inventory of what’s gathering dust in your closet and garage and use sites like eBay and Facebook Marketplace to turn these items into cash.
- Rent out your stuff. There may be someone out there happy to pay for something you don't use much. You can rent out everything from your car (on sites like Turo) to storage space in your home (through platforms like Store At My House). If you've got a yard, pool or guest room that's rarely used, those can be potential income sources, too.
- Find a side hustle. A side hustle can be a great way to beef up your bank account in your free time. In addition to traditional side gigs like food delivery, ask yourself if you could earn money for the things you're already doing. For example, check out how one CNET editor turned her passion into a profitable income source.
- Monetize your hobby. If you love baking, knitting or creating other things, you might be able to sell them on marketplaces like Etsy or a local farmers market. You can also make money by teaching your favorite activity, like photography or music, to other people.
🏦 Put your savings in the right account
You can grow your emergency fund faster by putting it in the right account. Here are three smart places to park your cash and the pros and cons of each.
High-yield savings account
The best high-yield savings accounts pay around 10 times the national average right now, and many have low or no fees. Plus, you can access your money anytime without penalty -- a must-have in the event of a true emergency.
However, it’s important to note that your savings rate is variable and could change without warning. In addition, the highest-paying HYSAs are often found at online banks, so you should be comfortable banking digitally.
Money market account
Money market accounts combine the interest-earning potential of savings accounts with checking account features like debit cards and check-writing privileges. The best money market accounts currently pay rates that are on par with HYSAs.
However, MMAs often require higher balances than savings accounts to earn the best annual percentage yield, or APY. They may also have monthly withdrawal limits and, like HYSAs, their rates are variable.
No-penalty CD
Unlike savings accounts, certificate of deposit rates are fixed when you open the account, so your earnings stay the same for the entire term. Traditional CDs charge an early withdrawal penalty if you need the cash before the term is up, but no-penalty CDs let you access your funds early without penalty, and many offer competitive APYs.
One downside of a no-penalty CD is that you'll need the money up front -- you can't add funds after you've opened it.
↪️ Automate your savings
With automatic savings, you set up automatic direct deposits from your paycheck or recurring transfers from your checking account to your savings account. This makes it easier to stick to a savings habit.
There are also accounts designed to help you save some change. Banks such as Ally and SoFi offer round-up features, which round up your purchases to the next dollar and deposit the difference into savings. For example, if you buy a sandwich that costs $8.64, the round-up feature will automatically deposit 36 cents into your savings account.
🏆 Try a savings challenge
Gamifying your savings can make saving money fun instead of a chore. There are lots of savings challenges to choose from, from the cash-only challenge (where you pay for everything in physical cash to make spending feel more "real") to the no-buy challenge (where you buy only essentials for a set period). There's a good chance you'll find a challenge that's doable for you.
Remember that every dollar counts
Saving money is like climbing a mountain. Instead of thinking about how hard it will be to get to the top, focus on the first step. Then, focus on the next one -- and the one after that. Every dollar you save can help you in the future, especially when inflation is squeezing your wallet.
