We recently talked about the value of having an emergency fund, or some kind of fund that is set aside for unexpected expenses (or opportunities!). I wanted to take some time to talk about some of the techniques I’ve used to build cash-on-hand reserves.
Most of us are already working a job that pays us via direct deposit into our bank account. My job allows for me to split my paychecks into multiple accounts, if I want, and yours might too. I have a specific amount of each check deposited into a savings account separate from my checking account (I use CapitalOne 360, and we may talk about why I use them at a later time). So, every two weeks, an amount of money is deposited that is already separated as savings and kept away from money that I have immediate access to. In fact, I recently got a small raise, and I adjusted my direct deposit savings to reflect this increase.
Acorns (or similar)
Acorns is a slick investment app that automatically invests money without you having to think of it. We can discuss in more detail later, but it can automatically invest money for you, with varying degrees of risk, depending on your risk tolerance (if you to use this as a savings vehicle short-term, then I recommend using the lowest risk setting you can). You can have acorns invest a set amount at varying intervals, or you can have it round up each purchase you make with a debit or credit card to the next dollar, and have it invest that rounded amount. It’s a neat way to set aside some funds, or start a small investment portfolio that could gain momentum over time. There are other options and competitors, but this is the one I’m familiar with.
This one takes a bit of discipline for me, but I have been working on maximizing this one as I’ve tightened up my budget. The idea is that anytime you come across extra money, through a bonus, or gift, or other unexpected cash, you don’t consider spending it, but instead immediately stash it away in your savings account. This week I received a check from my wireless carrier as a settlement in a class action lawsuit. It wasn’t very large, but guess where it went? Straight into savings.
The way Trade-offs work is really a mind game you are playing with yourself. If I ever get a gift card to my favorite restaurant, I take that amount out of my restaurant budget. So, if I get a $25 card to Chipotle, I take $25 from my monthly restaurant budget and move it to savings. So I still spend the same amount on restaurants as I intended, but I get to bump up my cash at the same time. The same applies to any other gift card or certificate you can get in other categories. Cash back rewards on your credit card? Replace money in your grocery budget with the redeemed amount. Just remember, this only works if you are committed to spending the same amount of money each month in your budget whether you have gift cards or not.
The age old saving strategy. Mine is less of a piggy and more of a jar, but the idea is the same. Any extra change or cash I find in my pockets or car, or even around town, goes straight into my jar at home. Once it fills up, I take it to the bank or coin machine and have it converted to cash and stored away.
I hope these give you some ideas of how to build up some extra cash to keep on hand. Using these strategies I was able to pretty quickly build up a cash fund that made me feel more secure, but didn’t make me feel like I was scrimping in other areas of my budget.
If you have other ideas, please share in the comments below! I’d love to help people find as many ways as possible to build up their savings!