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How to Start an Emergency Fund, Even if You Have No Savings Right Now

An emergency fund can save the day when an unexpected expense hits. And inflation doesn't have to stop you from building one.

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Building savings can feel like a struggle sometimes, especially when inflation makes everything cost more. A recent CNET survey found that 33% of people are saving less for long-term goals, and 20% are dipping into their savings accounts to pay for everyday expenses.

But building your savings -- especially your emergency fund -- is as important as ever. If you’re hit with a large, unexpected expense like a medical bill or job loss, emergency savings can help you cover costs without going into debt.

Even if you can’t put away as much as experts say you should, having a small emergency fund is better than none at all. And there are plenty of ways to do it, even when your dollars are already stretched thin.

Trim your expenses

The best way to start saving more is by spending less. Here are five practical ways to reduce your costs and free up money for savings.

  • Stop dining out. Next time you think about opening your delivery app or heading out for a bite, open the fridge first. Sure, cooking takes time, but time equals money. With a focused approach to buying groceries, you can save a ton of cash.
  • Walk or bike more. Research from J.D. Power shows that the average American spends between $150 and $200 a month on gas. Any time you can walk or bike to your destination instead of driving is a chance to cut that cost.
  • Look for ways to save on your auto insurance. Start with your current provider to see if they offer any savings, such as a pay-per-mile plan or a safe-driver discount. If they aren’t willing to offer you a better deal, compare quotes from other companies.
  • Cancel some of your entertainment subscriptions. Nearly half of Americans have signed up for a free trial of a subscription service and then forgotten to cancel it, according to CNET research. Review your account statements to see what you’re paying for. If you can eliminate two monthly streaming services, for example, you could save at least $20 a month.
  • Slash your cell phone bill. J.D. Power found that the average wireless bill is $157 -- a hefty sum of money, considering some of the best cheap phone plans are less than $25 a month. Look at the features you’re paying for and what you’re actually using. If you don’t need unlimited data and the fastest speeds, there are plenty of cheaper options.

Generate extra income

Upping your income is another way to put more toward savings. Some ways to do it include:

  • Sell your stuff. Your unwanted stuff could be valuable to someone else. There are loads of ways to sell your old electronics, clothes, sporting goods and other items. Take an inventory of what’s gathering dust in your closet and garage and use sites like eBay and Facebook Marketplace to turn these items into cash.
  • Find a side hustle. A side hustle can be a great way to beef up your bank account in your free time. In addition to traditional side gigs like food delivery, ask yourself if you could earn money for the things you’re already doing. For example, check out how one CNET editor turned her passion into a profitable income source.
  • Ask for a raise. If you’ve been in your current role for an extended period and you’re performing at a high level, now might be the time to ask for a bump in your salary. Don’t just ask, though -- articulate why you’re so important to the business and what you think you’re worth.

Put your savings in the right account

You can grow your emergency fund faster by putting it in the right account. Here are three smart places to park your cash and the pros and cons of each.

High-yield savings account: The best high-yield savings accounts pay around 10 times the national average right now, and many have low or no fees Plus, you can access your money anytime without penalty -- a must-have in the event of a true emergency.

However, it’s important to note that your savings rate is variable and could change without warning. In addition, the highest-paying HYSAs are often found at online banks, so you should be comfortable banking digitally.

Money market account: Money market accounts combine the interest-earning potential of savings accounts with checking account features like debit cards and check-writing privileges. The best money market accounts currently pay rates are on par with HYSAs.

However, MMAs often require higher balances than savings accounts to earn the best annual percentage yield, or APY. They may also have monthly withdrawal limits and, like HYSAs, their rates are variable.

No-penalty CD: Unlike savings accounts, certificate of deposit rates are fixed when you open the account, so your earnings stay the same for the entire term. Traditional CDs charge an early withdrawal penalty if you need the cash before the term is up, but no-penalty CDs let you access your funds early without penalty, and many offer competitive APYs.

One downside of a no-penalty CD is that you’ll need the money upfront -- you can’t add funds after you’ve opened it.

Automate your savings

With automatic savings, you set up automatic direct deposits from your paycheck or recurring transfers from your checking account to your savings account. This makes it easier to stick to a savings habit.

There are also accounts designed to help you save some change. Banks such as Ally and SoFi offer round-up features, which round up your purchases to the next dollar and put the difference into savings. When you buy a sandwich that costs $7.64, for example, the round-up feature will automatically deposit 36 cents into your savings account.

Remember that every dollar counts

Saving money is like climbing a mountain. Instead of thinking about how hard it will be to get to the top, focus on the first step. Then, focus on the next one -- and the one after that. Every dollar you save can help you in the future, especially when inflation is squeezing your wallet.

David McMillin writes about credit cards, mortgages, banking, taxes and travel. Based in Chicago, he writes with one objective in mind: Help readers figure out how to save more and stress less. He is also a musician, which means he has spent a lot of time worrying about money. He applies the lessons he's learned from that financial balancing act to offer practical advice for personal spending decisions.
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