One of our family's financial goals for 2013 is to sock money into savings while also paying down our credit card debt. While it might seem that paying down the debt should be the first priority, having a emergency fund is also important. Without savings, it's easy to get trapped in a cycle of borrowing for emergencies and then trying to pay off the debt (with compounded interest) before the next emergency strikes.
A emergency emptied out our savings account last summer and forced us to charge $25,000 worth of repairs on a home equity secured credit card. Along with making double payments on the credit card, we are slowly rebuilding our emergency savings account using the following four strategies.
Pay ourselves first. I pay our household bills on the 1st and the 15th to coincide with paydays. Before paying a single bill however, I transfer $75 to our savings account. This is called "paying yourself first" and diverts money into an emergency savings fund before it disappears through discretionary spending.
A better use for unexpected money. Even though my husband and I both have regular jobs, we also have little bits of money that come in throughout the month. These include everything from egg money to rebates, refunds, cash gifts and more. We used to spend this cash on movies or eating out. These days, all found money is going straight to the emergency savings account.
Working harder. I'm self employed which means that my hours are pretty flexible. Several months ago, I added 20 hours a week to my schedule to earn extra cash for credit card debt reduction. I've recently raised the bar even higher to earn an addition $100 a month which could be used to replenish the savings account.
Divert any savings gained. When gasoline prices dropped last month, we freed up $30 from our budget which went directly to savings. Next month, we'll have finally paid off a medical bill which means an additional $75 to sock into savings as well. As bills get paid off or are reduced, we plan on moving that extra bit of cash into our emergency savings account.
All these bits and pieces of extra money is making it possible for us to deposit between $250-350 a month into our savings account. While this isn't a huge amount, it's does means that by the end of the year our savings account should have a balance of about $5000 which is enough to cover most emergencies.
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