Deal Finder: Build an emergency fund, get out of debt in 2020
By LaTina Emerson, The Deal Finder
Each year, many people set financial New Year’s resolutions, such as saving money and getting out of debt. However, they usually don’t have a specific plan to achieve these goals and end up falling short.
To improve your personal finances, it’s important to have a financial game plan. This year, strive to build an emergency fund and get out of debt by following these tips:
An emergency fund is money set aside to cover large, unexpected expenses, such as home or vehicle repairs, medical bills or even unemployment. Experts recommend for people to have three to six months of living expenses saved in a separate bank account, so they’re not tempted to use the funds.
A high-yield savings account is a good place to keep an emergency fund because the money earns interest, is federally insured and can be accessed quickly, if needed, according to Nerd Wallet.
Set a Monthly Goal
To consistently save money for your emergency fund, set a monthly savings goal. Designate a certain amount of money that you will transfer to your savings account every month. There are a variety of money-saving challenges, so pick the one that works best for you:
With this challenge, you will gradually increase the amount that you save each week. There are 52 weeks in a year, so the first week you will save $1. The second week you will save $2. The third week you will save $3, and so on until you save $52 for the final week of the year. By the end of the challenge, you will have saved $1,378.
If your finances allow it, double the weekly savings goals in this challenge to save twice as much in one year. By the end of the challenge, you will have saved $2,756.
Other ways to modify the 52-week challenge include starting in reverse, or saving $52 the first week and working your way down to $1 by the last week. Or, if you have small disposable income, you could cut the challenge amount in half. So, you’ll save $0.50 the first week, $1 the second week, $1.50 the third week, and so on.
In addition, you can adjust the savings challenge to accommodate how often you get a paycheck. If you get paid every two weeks, add up how much you should be saving for those designated weeks. For instance, for weeks one and two, you’ll save $1 plus $2 for a total of $3. For weeks three and four, you’ll save $3 plus $4 for a total of $7. If you get paid monthly, save these increasing amounts each month for a grand total of $1,378: $21 in month one, $45 in month two, $70 in month three, $74 in month four, $90 in month five, $106 in month six, $122 in month seven, $138 in month eight, $154 in month nine, $170 in month 10, $186 in month 11 and $202 in month 12.
No Spend Challenge
Challenge yourself not to spend money on specific types of expenses for a month or more. For example, you could eliminate dining out at restaurants, buying your lunch, visiting the coffee shop or purchasing new clothes.
Spare Change Challenge
If you use cash to make purchases, put your spare change in a piggy bank and allow it to add up.
Round Up Challenge
You can also save money by rounding up your purchases. Apps, such as Acorns, Chime, Qapital, Digit and Qoins, automate the saving process by rounding the amount of your purchase to the next whole dollar and investing the difference for you. For instance, if you spent $1.75, the app would round up to $2 and save $0.25 for you. Some banks offer something similar with checking accounts. When customers make purchases with a debit card, the amount is rounded up to the next whole dollar and the difference is automatically transferred to a savings account.
Get a Second Job
Sometimes the only way to have extra cash or make significant progress in your savings goals is to bring in additional money. If possible, find a second job or regular freelance gig to improve your financial situation. Do yard work, babysit or pet sit for neighbors, bake desserts for the holidays, offer tutoring services to students and more to make supplemental income.
Save Your Tax Refund
Instead of spending your tax refund, have the money deposited directly into your emergency account.
Sell Unwanted Items
Your trash could be someone else’s treasure, and you could profit from it, too. Look around the house for old toys, clothes, exercise equipment or power tools and have a yard sale or sell the items online.
Reduce Your Expenses
Analyze your monthly expenses and make cuts whenever possible. First, eliminate unnecessary items such as automatic subscriptions, video or music streaming services and memberships that you don’t use regularly, including Netflix, Hulu, Amazon Prime, Spotify, Apple Music, Pandora, gym memberships or warehouse store memberships.
Next, work to lower your monthly bills. Contact your service providers to negotiate rates, cut extra services or lower interest rates on credit cards. For your cell phone, try reducing your data plan, if you don’t think you’ll incur overage charges. For your cable service, downgrade your cable package or eliminate the service completely, especially if you don’t watch much television.
Then, establish a monthly budget to keep track of a variety of expenses: mortgage or rent, auto loans, student loans, electricity, oil or gas, water, sewer, garbage collection, phones (landline and/or cell phones), cable or satellite, internet, car insurance, health insurance, medical/dental payments, retirement savings, emergency fund savings, credit cards, groceries, gasoline, public transportation costs, dining out, school lunches, etc. Finally, work to keep expenses low. For instance, make a grocery list before going shopping to make sure you only buy essential items.
After you have a starter emergency fund of about $1,000 saved, you can start tackling your debt. With the debt snowball method, you pay off debt from smallest to largest, regardless of the interest rate. As you pay off debts, the money used to pay smaller debts is rolled over to pay the next smallest debt. Essentially, you’re paying as much as possible on your smallest debt and making minimum payments on the remaining debts. This is repeated until all debts are paid in full.