You might think the title of this post is too good to be true, but I promise: this is the easiest hack to building a real Emergency Fund on a tight budget.
You can build an Emergency Fund with $20.
When I decimated my Emergency Fund in 2016 and immediately added to my state of financial crisis with an unplanned pregnancy, I knew I had to get my finances in order fast. But how on earth was I going to rebuild my savings while still trying to build my company and buy baby stuff?
Starting is the most important step
When I get anxious emails from people trying to get a handle on their finances, usually it’s equal parts overwhelm and failure. I have nothing saved, how can I possibly get to $X?
Well, you start by opening an account and putting a dollar in it.
If you have $0 saved for retirement, and you wish you had $10,000, you’re not going to get anywhere near that number by staying at $0, but you have a shot if you put $10 away. You have a better chance if you find a way to save $100. And you have a really good chance if you can manage to put $1,000 in a savings account.
Why? Because once you learn how to do something one time, you just have to repeat it. In the above case, once you’ve found a way to save $1,000 you would only have to repeat your behavior nine more times and you’d reach your goal. See? Easy.
Don’t ruin a good thing: compound interest counts
It’s been my experience that money grows well if you just leave it alone. Even at low interest rates. Even with minimal contributions. If you don’t spend it, your bank balance grows.
If you save $20 per week in a savings account earning 1%, at the end of one year, you’ll have $1,045.12
Ok, it’s not glamorous, but it’s not nothing either. Whether you care to admit it or not, every dollar you earn in interest is a dollar you don’t have to work to earn, and that’s awesome. I don’t care if you’re only earning $2 in interest per year – somewhere, someday, that is a small coffee you don’t have to pay for.
How to turn $20 into $1,000
When it came to rebuilding my emergency fund while saving for a baby, I found the easiest and most painless way was to set aside $20 per week. It was a ridiculously trivial amount, the cost of a nice lunch during the work week or a good bottle of wine with dinner, neither of which I was partaking in as a pregnant woman. I knew I could afford to tuck away $20 per week while still keeping my primary saving focus on funding my maternity leave.
I could afford $20 per week. In fact, it was so small, I probably wouldn’t even notice it. So I set up an automatic bank transfer from my chequing account to move $20 every Friday to my Emergency Fund savings account.
I’m the first to tell you $20 is a pitiful Emergency Fund. So is $40 and $80 and $100, for that matter. But once I’d been saving for 12 weeks, and my balance tipped towards $250 I couldn’t help but think, “well, that’s enough for a minor unexpected expense.” Thankfully, I didn’t have any emergencies crop up, which meant my account kept growing with my contributions and a little bit of interest every month.
Then I realized something: $25 isn’t that much more than $20.
Painlessly increasing your contributions
For all the times I harp on about The Latte Factor, even I was forced to acknowledge that skipping my Friday Starbucks run would let me increase my contributions to my newly regenerating EF to $25 per week or about $100 per month.
I felt like I was doubling-up on financial security everywhere. Not only did I have a Baby Fund, but I also had the added defense against whatever non-baby related catastrophe could hit me at any moment. (Though I have to say, after the unplanned baby thing I felt there were very few financial surprises I wouldn’t be able to weather with creativity and grace).
I had an emergency fund, and I had built it with only $20 per week. Thanks to interest and keeping up with my contributions, it hit $1,000 in no time. Furthermore, because $25/week was so easy to save, I knew I could keep going even in my maternity leave.
Finding $20 per week to save
You might think your budget is already airtight and you can’t possibly find another $20 to allocate somewhere knew, but there are ways to finagle this from old and new places if you get creative.
Where to find $20 per week:
• Skip dining out for two lunches or 1 dinner
• Have two fewer beers or 2 fewer glasses of wine every weekend
• Skip your usual taxi or Uber rides and walk or take public transit instead
• Negotiate to lower your monthly insurance premiums or cable costs
• Clip coupons and shop with a list on your next grocery run to reduce your bill
• Earn cash-back on your spending through eBates or a cash-back credit card
• Babysit, dog-walk, or tutor for some extra money on the side
In other words, you no have excuses not to start saving your Starter Emergency Fund. All it takes is $20!