How Do I Build An Emergency Fund?

April was Financial Literacy month, and you were likely bombarded with articles and posts, like “10 Things You Can Do to Improve Your Financial Health.” I don’t know about you, but I tend to read those articles, feel an initial surge of motivation, and then quite frequently become overwhelmed. This leads me to doing nothing on the list. As I was reading an article yesterday, I had an epiphany. Why am I so focused on doing all or nothing? Why not pick ONE thing and ignore the others for now?  So, I’ve decided to build my emergency fund back up to a comfortable level.

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Your first impulse might be, “Easy. Put an extra $   into your savings each month until it is back at a minimum of three months of living expenses.” However, for me, the first step means spending some quality time with my budget.

I track my budget using an Excel spreadsheet.  I plan to pull my checking, savings, and credit card statements for the entirety of 2019 year-to-date, break my expenses out into categories, and find the average monthly spending for each category. In addition, I will need to account for periodic expenses, like car insurance, property taxes, etc. Once I have my actual expenses, I need to come up with a realistic goal of what I plan to spend in each category going forward. Realistically, I can’t expect to suddenly cut my grocery bill in half. However, maybe I could cut it by 10% next month by making a list before I head to the store to avoid impulse buys.

Once I have my plan going forward, I will, hopefully, find that there is an excess of income compared to planned expenses. That number will then translate to the “extra” I can move into savings each month to build my emergency fund. If I make it to this point and realize I have a net income of zero, or a deficit, it’s time to review my planned variable expenses again. I don’t want to set unrealistic expectations for myself, but I also shouldn’t be planning to spend more than I’m earning.

My biggest variable expense right now is dining out. My friends and I have a bit of an addiction to trying new restaurants in the area. Now that the weather is nice again (minus the pollen!), we are going to enjoy more free (or inexpensive) activities, like grilling out, game nights, and hiking.  This should free up some money that I can earmark towards building my emergency fund.

If you have never had a date with your budget before, I suggest you give it a go. Try not to be too hard on yourself and don’t obsess over things that are out of your control.  We have an awesome Spending Plan spreadsheet that we would be happy to send to you. Just let us know!