For many families,having an emergency fundsounds like wishful thinking.
One in three families — some with incomes of $100,000 or higher — saythey don’t haveone, according to a 2015 report from the Pew Charitable Trusts.
But if you don’t haveat least a small emergency fund, you’ll be vulnerable to debt when you have an unexpected expense. And that makes these expenses even more costly. For example:
– Charging a$400 car repair adds$37 to the cost, assuming it takes nine months to pay off and your credit card’s annual percentage rate is21.99%.
– Resorting toa payday loanto cover the same car repair could add $60 or even more if you can’t pay it off within the first 14-day cycle.
There are options when you think your income isn’t enough to open an emergency fund. Bonuses and rewards, rethinking your bills or maximizing your tax refundcan all help you get started.
Set goals anda budget
According to the 2015 Pew report, the mediancost of surveyedhouseholds’ highestunexpected expensewithin the past year varied from$1,000 for those with lower incomes to$3,000 for those with higher incomes.
The ideal emergency fund covers three to six months of living expenses in case of job loss. But $1,000 or even lesscan keep you out ofdebt by covering car or household repairs, medical bills or rent. Here’s how to build that cushion:
MAKE A SAVINGS PLAN
This applies to all households regardless of income, but if you receive public benefits, ask your case manager about the amount you can save withoutaffecting your assistance.
Find out where your money is going.Review your current spending patterns by sorting through your statements or downloading a free budgeting app.
Set specific short-term and long-term goals.For example, you might try to save$84 per month so you’ll have$1,000 afterone year.
Rethink your bills and your budget. The right adjustments can free up $50 or more per month to go toward savings:
– Car insurance: Shop around for better deals. A 2015NerdWallet study revealed that drivers can save an average of $859 per year by comparing ratesat renewal time.
– Utilities: If you qualify, sign up for low-income assistance programs for gas, electricity or water bills.
– Home: Ask your landlord about renewing your rental agreement for six months or a yearto lock in your current rent. If you’re a homeowner, consider refinancing your mortgage.
– Phone: Get a cheaper cell phone planor find outif killing your landline will save you money.
– Transportation: Public transportation is usually cheaper than driving. If you need a car, though, mobile apps can help you avoidtraffic — saving on gas and wear and tear — and locate cheap gas prices.
– Cable: Ditch your cable bill and opt for a cheapersubscription service, such as Netflix or Hulu.
– Gym or club membership: If you don’t use it, lose it.
Get creative about finding extramoney, and then deposit it inyour emergency fund.
Make your bank work for you. Switch to a low-fee checking account or askif your bank or credit union waives monthly fees when you set up automatictransfers to savings. You might get a bonus of between $50 and $300 for switching banks, but read the fine print to make sure the new account’s ongoing fees won’t offset your bonus.Understand that bonuses are considered taxable income, as are debit cash-back rewards. You can also use credit card cash-back rewards to start a fund, but avoid cards with rewardsunless you can skip the annual fee.
Know your tax credits.Tax preparation software, a tax professional or a tax-prep volunteer can help you check outavailable tax credits. Your refund can be an easy way to start saving for emergencies. Look into the earned income tax credit,a tax credit for low- and moderate-income earners, and find out whether you’re owedunclaimed money from recent tax years. The child tax creditcan be worth as much as $1,000 perchild depending on your income level.
Take advantage of rewards and coupons.To free up money to add to your emergency fund, sign up for loyalty programs at the stores you visit most. Browse the app store on your mobile devicefor appsthat alert you to low prices or coupons. Use couponsonlyfor things you need, or you might be tempted to spend more.
Start wherever you can, even if all you have isloose change. If you can save even $1 a day, you’ll be on your way to$365 in a year.
Asyour emergency fund grows, keep itoff limits. It’s tempting to pull out $100 when you’re low on cash, but it’ll cost you in the long run if you must borrowto cover emergencies.
When your emergency fund comes through for you,it will geteasier to prioritize and rebuild it.After the first $1,000, you’ll be in the habit of saving and may even find a$2,000 goal doable.
The article Saving $1,000 When You’re Living Paycheck to Paycheck originally appeared on NerdWallet.