If you've been following this guide step by step, you should already have a budget in place and one month of living expenses saved up.
Now try the five strategies listed below to up your emergency fund to three months of living expenses.
1. Automate deposits
Set up automatic deposits from your checking account to your emergency fund on a schedule that works for you. You can coordinate your deposits to be on the same day as when your paycheque arrives. By paying yourself first and automating the process, you won't mindlessly spend that money.
2. Round up your spare change
In addition to automating your deposits, you can also use apps like Mylo that round up your purchases to the nearest dollar and put the spare change in your savings account. A few pennies each time can add up without you even noticing.
3. Pause all other savings and investments
Instead of spreading your budget thin among several financial goals, tackle them one at a time. Saving up at least three months of living expenses in your emergency fund should be prioritized over all other saving and investment goals. Yes - that means you should pause investing for retirement until you've sufficiently funded your emergency fund. It just doesn't make sense to invest for the future when present you needs more financial stability.
4. Decrease your spending
No matter how tight or generous your budget is, it's always a good idea to reflect on how you spend your money. Most people never stop and ask themselves what they value in life and what truly makes them happy.
The entire basis of consumer advertising is to try and convince you that you'll finally be happy/successful/attractive once you buy this specific product. But it never seems to be enough. The excitement of purchasing a fancy new car only lasts a short while. Then we return to the same baseline level of happiness as before. This is called the hedonic treadmill, or hedonic adaptation.
You don't need to become a minimalist and live in a van, but we could all be more mindful about our spending and learn to be a bit more content with what we already have.
An excellent place to start exploring this topic is The Happiness Lab podcast, specifically Season 2 Episode 8: Demonic Possessions.
5. Increase your income
An important disclaimer here: I'm writing this in the middle of a global economic pandemic. Many people have lost their job or a significant portion of their income during this time. The priority right now is applying for government relief, looking for a new job, or holding on to your current job. If the advice below on increasing your income doesn't apply to your current situation, that's ok. You can come back to it when your industry recovers.
There's only so much you can cut from your budget, but (during normal economic circumstances) there's no limit on how much money you can make. Assuming you are an employee rather than a business owner, there are three ways you can increase your income:
We've all heard the saying "you need to spend money to make money". There is truth to it if you're a business owner or real estate investor. But when your goal is to save up an emergency fund, it's not the time to make any risky investments. Your side hustle should have $0 in upfront costs. This makes freelancing an ideal side hustle opportunity.
When I was starting my freelancer journey, the best advice I received was: find a niche that you can own.
Your niche as a freelancer is not necessarily the thing you're most passionate about. A profitable niche needs two components: (1) a job that you can do well and (2) the right group of people/companies who are willing to pay someone for that job.
You would be amazed at just how narrow a profitable niche could be.
Think of it this way. If you own a dental office and are looking to hire someone to help with social media, which of these two people would you hire:
I can guarantee that Person B not only earns more money, but they also have a much easier time closing new clients. Since they specialize in the dental industry, they already speak the same language as their clients and understand their needs.
For more advice on freelancing, check out these resources:
Important: I urge you to never, under any circumstance, get involved with multi-level marketing businesses (MLMs). There is staggering evidence to show that 99% of people who are involved with MLM businesses end up losing money. Even if the products they sell are good, it doesn't mean that the business model works. These companies use predatory and manipulative tactics to rope you in and get you to invest hundreds or thousands of dollars upfront. If you want to learn more about the world of MLMs, listen to Season 1 of The Dream podcast.
When you reach this goal, add a comment below to share how you did it and so that we can celebrate with you.