Building an emergency fund doesn’t have to take years. If you don’t currently have one, or the one you have isn’t sufficiently funded, personal finance expert Ramit Sethi has some advice to help you change that.
Warren Buffett: 10 Things Poor People Waste Money On
Find Out: The New Retirement Problem Boomers Are Facing
In April, he posted several steps on X to quickly build a 12-month emergency fund. Here’s a look at five of those steps, which can allow you to have the security of an emergency fund much faster than you might imagine.
Sethi recommended eliminating as much non-essential spending as possible, and doing so fast to redirect this money where it’s needed most right now — i.e., your emergency fund.
A few suggestions to do this include reducing energy costs, finding ways to reduce impulse purchases, negotiating rates with service providers, buying secondhand, seeking out free entertainment, looking for sales, canceling unused subscriptions, cooking at home, shopping your insurance coverage and taking on an accountability buddy, according to Fidelity.
Learn More: 6 Things the Middle Class Should Sell To Build Their Savings
Whether you’re planning to buy a new car, renovate your home or move, Sethi said now isn’t the time to do so.
“I would avoid major new expenses, which always come with phantom costs,” he posted.
In March, the average cost of a new vehicle was $47,462, according to Kelley Blue Book. Also pricey, the average cost of a local move is $1,250, rising to a range of $1,123 to $14,104 for a long-distance move, according to Moving.com.
Clearly, putting a major purchase off for a year or two can fast-track your emergency fund savings.
It might not be easy, or even possible, to completely avoid some of your standard expenses. However, Sethi advised finding creative ways to save money on these necessities.
For example, he said extending personal care timetables by a month can save you hundreds of dollars per year. This adds up, as the average cost of a haircut is $35 to $150 (or more), and an additional $65 to $200 for highlights, according to Thumbtack.
Wanting to pay off all of your debts is admirable. However, if you don’t have a 12-month emergency fund, Sethi said to consider stopping the extra payments on high-interest debt right now and putting that money toward savings.
Another thing to ponder, paying off a loan early could temporarily lower your credit score. Depending on the terms of your loan, you might also face prepayment penalties.
Add Comment