December 23, 2020

By: Consumer Financial Protection Bureau (CFPB)

This year, for many Americans who experienced financial challenges as a result of the coronavirus pandemic, preparedness means taking small steps toward rebuilding and resilience.

If you are ready to think about your bigger financial picture for the first time in months, what’s the first step?

Consider – or start – your emergency saving fund. As you build it over time, it will help cover unexpected expenses that may come, whether that be a natural disaster, unexpected illness, car trouble, or other financial downfalls. It can become an important means for avoiding unwanted debt and help you more quickly realize your dreams. In short, it can become a strong foundation for your financial future.

There are different strategies to get your savings started. These strategies cover a range of situations, including if you have a limited ability to save or if your pay tends to fluctuate. It may be that you could use all of these strategies, but if you have a limited ability to save, managing your cash flow or putting away a portion of your tax refund are the easiest ways to get started.

Strategy #1: Create a savings habit

Building savings of any size is easier when you’re able to consistently put money away. It’s one of the fastest ways to see it grow. If you’re not in a regular practice of saving, there are a few key principles to creating and sticking to a savings habit:

  • Set a goal. Having a specific goal for your savings can help you stay motivated. Establishing your emergency fund may be that achievable goal that helps you stay on track, especially when you’re initially getting started. Use our savings planning tool to calculate how long it’ll take you to reach your goal, based on how much and how often you’re able to put money away.
  • Create a system for making consistent contributions. There are a number of different ways to save, and as you’ll read below, setting up automatic recurring transfers is often one of the easiest. It may also be that you put a specific amount of cash aside each day, week, or payday period. Aim to make it a specific amount, and if you can occasionally afford to do more, you’ll watch your savings grow even faster.
  • Regularly monitor your progress. Find a way to regularly check your savings. Whether it’s an automatic notification of your account balance or writing down a running total of your contributions, finding a way to watch your progress can offer gratification and encouragement to keep going.
  • Celebrate your successes. If you’re sticking with your savings habit, don’t miss the opportunity to recognize what you’ve accomplished. Find a few ways that you can treat yourself, and if you’ve reached your goal, set your next one.

Who is this helpful for: Anyone, but particularly those with consistent income. If you know you have a regular paycheck or money consistently coming in, you can create a habit to put some of that money towards an emergency savings fund.

Strategy #2: Manage your cash flow

Your cash flow is essentially the timing of when your money is coming in (your income) and going out (your expenses and spending). If the timing is off, you can find yourself running short at the end of the week or month, but if you’re actively tracking it, you’ll start to see opportunities to adjust your spending and savings.

For example, you may be able to work with your creditors (like your landlord, utility companies, or credit card companies) to adjust the due dates for your bills, or you can use the weeks when you have more money available to move a little extra into savings.

Who is this helpful for: Anyone. This is one important first step in managing your money, regardless of whether you’re living paycheck to paycheck or have a tendency to spend more than your budget allows.

Strategy #3: Take advantage of one-time opportunities to save

There may also be certain times during the year when you get an influx of money. For many Americans, a tax refund can be one of the largest checks they receive all year. There may be other times of the year, like a holiday or birthday, that you receive a cash gift.

While it’s tempting to spend it, saving all or a portion of that money could help you quickly set up your emergency fund.

Who is this helpful for: Anyone but particularly those with irregular income. If you receive a large check from a tax refund or for some other reason, it’s always good to consider putting all or a portion of it away into savings.

Strategy #4: Make your saving automatic

Saving automatically is one of the easiest ways to make your savings consistent so you start to see it build over time. One common way to do this is to set up recurring transfers through your bank or credit union so money is moved automatically from your checking account to your savings account. You get to decide how much and how often, but once you have it set up, you’ll be making consistent contributions to your savings.

It’s a good idea to be mindful of your balances, however, so you don’t incur overdraft fees if there’s not enough money in your checking account at the time of the automatic transaction. To help you stay mindful, consider setting up automatic notifications or calendar reminders to check your balance.

Who is this helpful for: Anyone, but particularly those with consistent income. Again, you can determine how much and how often to have money transferred between accounts, but you want to make sure you have money coming in. If your situation changes or your income changes, you can always adjust it.

Strategy #5: Save through work

Another way to save automatically is through your employer. In addition to employer-based contributions for retirement, you may have an option to split your paycheck between your checking and savings accounts. If you receive your paycheck through direct deposit, check with your employer to see if it’s possible to divide it between two accounts. If you’re tempted to spend your paycheck when you get it, this is an easy way to put money aside without having to think twice.

Who is this helpful for: Those with consistent income. Again, if you’re getting a check from your employer on a regular basis, pay yourself first by putting a portion of it automatically into savings.

It might seem impossible to save enough to get you and your family through something like a furlough, job loss, or reduced hours. But any amount can make a difference and it’s never too late to start. The more you can save, the better you can weather the worst, and the faster you can recover when it is over.

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