So how much money do millennials have socked away in their savings? A recent survey reveals that the majority have only less than $1,000 in savings. And if you break it down by income, it’s no surprise that 56.3 percent of millennials earning $25,000 to $49,000 have less than $1,000 saved up, whereas 50 percent of those making more than $150,000 a year had savings of $20,000 and upward.
So how can you squirrel away money when you don’t have much spare cash at the end of the month? Sure, there may be a host of reasons why you don’t have much in your savings (i.e., you might be struggling to stay on top of bills, mounting student loans, etc.). But here’s the bottom line: you really need to get cracking on socking money away, particularly for an emergency fund.
“Your emergency fund is there for all those types of ‘emergencies’ and more,“ explains Shannah Compton Game, CFP®, MBA of Millennial Money. “But its most important job is to stop you from turning to your credit cards to get through the month where you’ll rack up more debt.”
While you may be thinking, Duh. But how? The thing is you don’t need to be raking in six figures to save up. Here’s how to get started on saving for an emergency fund:
The recommended amount for an emergency savings is three to six months of basic living expenses. This may be a tall order if you don’t have a lot of money, so start small and take baby steps to build your savings. Game recommends to aim to save at least 2-5 percent of your take home pay each pay period.
Automate Your Savings
Automating your savings will ensure you save money on a regular basis with minimal effort. Plus, money you don’t see is money you won’t spend. “If your employer allows you to direct deposit to two bank accounts, change your direct deposit so that money goes directly into your emergency savings without even touching your checking account,” recommends Katie Brewer, CFP®, a virtual fee-only financial planner.
Contribute Bonus Cash
Brewer also suggests making a commitment to sock away “extra money” from bonuses, money earned from overtime, tax refunds, or gifts toward your emergency fund. She suggests putting 20 percent of your savings toward “fun” goals such as vacations, shopping, and beer money, and the remaining 80 percent toward your financial goals such as an emergency fund or toward retirement.
Take a Close Look at Your Spending
“With a tight budget, you have to get creative and find ways to still enjoy all the things you love to do in life, while still saving money,” explains Game. Look into areas you can cut back on, such as eating out with friends. Or see if you can get a cheaper plan on your cable or cell phone bill.
Pro tip: Every dollar you save should go straight into your emergency savings. For instance, if you manage to get a cheaper rate on your Internet bill, which saves you $20 a month, sock away an extra $20 into your e-fund. That way money you save won’t be spent on something random.
Keep Separate Accounts
Keeping your emergency fund separate from your main savings will prevent you from tapping into it unless you absolutely need to. It’s far too easy to use money intended for your emergency fund if it’s all in the same pool of money. Brewer suggests leaving enough of a buffer in your checking account so that you won’t need to constantly transfer back and forth.
If you need help opening an account, contact your local credit union branch, where an employee can walk you through the steps and answer your questions.
Get a Side Hustle
Besides stashing away “extra cash” from your bonuses, consider getting a side hustle to boost your emergency savings. There are plenty of ways to earn an extra buck these days, from putting together IKEA furniture on sites such as TaskRabbit, pet sitting, opening your own Etsy store, or becoming a ride share driver. If you work in a creative profession such as a graphic artist or copywriter, consider taking on freelance work on the side.
If you don’t have a whole lot of dough in your savings, you’re in good company. And while you may not have as much money as you would like saved, don’t despair. By taking small steps today, you will well be on your way to building a robust emergency fund that’s there when you need it.