How to Build an Emergency Savings Fund During Inflation

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In the midst of inflation, finding extra money for an emergency fund is probably harder — and more daunting. The latest inflation data from the government’s Consumer Price Index report for September does not help. It showed on Thursday that despite the Federal Reserve’s efforts to slow the economy and lower prices through interest rate hikes, inflation is not going away – in fact, prices across a wide range of goods and services rose again, and inflation even rose above market expectations.

“It’s a challenge because more of their discretionary income is being spent on things that aren’t generally discretionary,” said Jeffrey Mattonelli, financial adviser at Van Leeuwen & Company in Princeton, NJ. “They probably don’t eat less, and they still need the same amount of household items, they just spend more.”

Fortunately, there are some fairly simple ways for people looking to boost their emergency savings. Here are five tips to start building an emergency fund or saving even more if you already have one.

It should start with a spending plan

Start by creating a spreadsheet so you know what it takes to run your household on a monthly basis. Your list should include any expenses you might incur such as rent, food, insurance, utilities, car payments, charity, student loans, vacations, said Lori Gross, financial adviser at Outlook Financial Center in Troy, Ohio.

This will help you better understand what’s left for savings needs like retirement, college, long-term care and an emergency fund, she said.

In general, experts advise keeping three to twelve months worth of expenses as an emergency fund. The amount of the safety margin will depend on factors such as age, life stage, job security and predictability of income.

Make regular and automatic savings

Instead of throwing money into an ad hoc emergency fund, create a line item in your budget to contribute every paycheck or month until you reach your goal, said Sam Waltman, senior advisor in heritage at Kayne Anderson Rudnick, based in Los Angeles.

Whatever amount you choose, consider it non-discretionary and schedule it to go into a dedicated account for emergencies, he said.

Give yourself fun money every week

Many people spend too much on recreational activities, leaving less money to set aside for emergencies. To alleviate this, Gross tells clients to set aside a certain amount of cash for weekly play money and hold themselves accountable (don’t leave play money out of the spending plan spreadsheet). And don’t be tempted to use a credit card to make up the difference. While you may tell yourself you’ll spend less the following week, you probably won’t, she said.

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Gross also advises customers to pay their credit card balance in full each month. Carrying a balance will cause you to accrue interest charges, which will affect your ability to save for emergencies. “It’s much better to pay it to yourself than someone else,” she said.

Review subscriptions

Look at your monthly expenses — especially subscription-based ones — to see where you can cut the fat. While 95% of Americans think subscriptions will become more important in the next few years, 20% say they already feel like they have too many, according to a July SurePayroll survey.

Recurring charges could include periodicals, streaming and television services, specialty mail-order subscriptions, gym and recreation memberships, home maintenance, landscaping service and house cleaning, Waltman said.

“Maybe if you peel back the layers you’ll find that you’re on some kind of recurring payment plan and you don’t necessarily need to be if you’re not using the service or profiting from it. service,” he said.

Search for lost funds

There are a number of unconventional places people can look for “hidden money” to boost an emergency fund, said Chris McMahon, president and CEO of Aquinas Wealth Advisors in Pittsburgh.

A person may have an old life insurance policy purchased by a relative, for example. The policy may have accumulated cash value that can be used as an emergency savings buffer, he said.

Another option, if you have done your own tax returns, is to consider working with a tax preparer to see if any deductions on recent tax returns may have been overlooked. If you’ve worked with the same tax preparer for years, a second opinion might also be in order, he said. Filing an amended return isn’t difficult, and the cost of using a tax preparer can be minimal compared to the money found, McMahon said.

A tax refund could also be used to build an emergency fund, Mattonelli said. Even better, rearranging your retainer could mean more money in your pocket each month that can be set aside for emergencies, he said.

Another idea might be to stay with a family member and rent out your home for a few months. McMahon had clients in Alabama who were able to earn around $42,000 by renting their homes to football fans during the college season. Another customer rented his car through Turo, the peer-to-peer car-sharing company, bringing in around $4,300 in 90 days.

Others filled their coffers with side hustles, delivering for Uber Eats in the evening or selling items through companies such as Poshmark, a social commerce marketplace, or The RealReal for authenticated luxury shipping.

“Sometimes people think there’s no room for extra savings. But there are practical techniques they can try,” McMahon said.

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