How to plan for unexpected expenses — and still save — on a tight budget
No one expects the unexpected but knowing you have the funds on hand if you have a financial setback or unexpected expense is comforting. (iStock)
No one can predict an emergency—loss of a job, medical expense, expensive car repair. Hopefully, nothing ever happens. But if you have an unexpected expense or a financial setback, what are the best ways to save for the future?
Nearly four in ten Americans, or 38%, said they would be in financial "survival mode" in 2021, according to a study by Fidelity Investments. One in six people said that recovering from financial losses due to the COVID-19 was among their top goals for 2021.
Explore these eight steps you can take to start saving money to build an emergency fund, even if you're on a tight budget. Then, check out Credible's high-yield savings account partners who can help you take your savings to the next level.
1. Track your spending
The first step in saving in for the future is first setting up, then scrutinizing your budget. Tracking where and when you spend your hard-earned cash—like from impulse buys to necessary grocery store purchases—can help you identify expenses you can cut back on or cut out completely.
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2. Add up discretionary expenses
In September 2020, consumer debt rose to $4.2 trillion in the U.S., according to the Federal Reserve. Although spending was down a bit, more people depended on a short-term loan or credit card to pay bills and make essential purchases.
That’s one reason why it is important to go through all your expenses and see exactly where you're spending money each month and finding areas where cutting costs makes sense. The money you save from one less coffee order or canceling a magazine subscription can add up.
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3. Begin automating your savings
Instead of making manual deposits into an emergency fund, set up a portion of your money to be deposited automatically into a separate savings account that's set aside solely for urgent matters. Some online banks offer very competitive savings rates. To compare and find the right savings account that can help you achieve your savings goal, visit an online marketplace like Credible.
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4. Sock away extra income
COVID stimulus payments from the government, a work bonus, tax refund, an inheritance, or winnings from the lottery are kinds of extra money that can be set aside for a rainy day and grow your emergency fund.
5. Take out a short-term personal loan
Before the pandemic, the top two reasons borrowers checked out personal loan rates were for debt consolidation and credit card refinancing.
Using a personal loan can be a low-cost option to consolidate debt or refinance high-interest credit cards. You’ll save money overall by lowering the total amount of interest you pay each month.
Many lenders offer same-day financing with competitive rates and terms. And because funds can be dispersed so quickly, personal loans are an excellent option to cover an unexpected expense. Visit Credible to use their personal loan calculator, and explore lenders and find the best loan rates all in one place.
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6. Apply for a 0% APR credit card
A 0% APR credit card is one way to get a break from double-digit interest rates. For the introductory period, you’ll enjoy 0% interest on purchases and balance transfers. Just be sure to pay off debt you've accumulated on the credit card before the introductory period ends. The less you’re paying in interest, the more you can put toward building your emergency fund. To find the best credit cards with 0% interest, visit Credible.
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7. Open a high-yield savings account
High-yield savings accounts offer higher interest on your money than standard savings accounts. They are more flexible than certificates of deposit (CDs) and less risky than many investments. Keep in mind you're typically limited to six withdrawals each month. Many online financial institutions, banks, and credit unions charge no fees to open your account, and you may not need a minimum deposit.
Your savings account is FDIC-insured, and you will reach your financial goal of saving for unexpected events faster than with a regular savings account. If you’re interested in quick and easy ways to save money, visit Credible today to find a high-yield savings option that best fits your goals.
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8. Refinance your student loans
In 2019, the average student loan debt was $33,654, and the average student loan monthly payment was $393. That alone can make saving for unexpected expenses nearly impossible for many students and recent graduates.
Even so, refinancing multiple private student loans might lower both your monthly payment and interest. To see if you can save by refinancing your student loans, use Credible’s student loan refinancing calculator.
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Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.