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Unemployed Americans are spending more time looking for work as employers hold back on hiring amid recession fears and rising interest rates.
About 826,000 Americans reported being unemployed for 15 to 27 weeks, or about 3.5 to 6 months, in December, according to Labor Department data. This is up from 526,000 people who were unemployed for the same period in April 2022.
Layoffs and long-term unemployment are just a few of the many reasons emergency funds must be used. Experts usually recommend aiming to save six months’ worth of expenses from three to six months, but with longer periods of unemployment becoming more common, even more costs. It may make sense to save
It doesn’t matter if you haven’t come yet. But remember: Even a dollar can help, says Katherine Fox, her planner at Portland, Oregon-based Certified Financial.
“Three to six months of living expenses is a worthy goal, but even $50 or $100 can go a long way in helping you get through tough unpredictable times,” Fox told CNBC Make It. I’m here.
Whether you’re just starting out or looking to add some cushioning, use these tips to bolster your emergency fund.
1. Cut costs
To increase your savings, you may need to cut your living expenses.
Unfortunately, there are limits to what you can realistically cut from your budget. Other times, you may not have the money to live without your current spending. But it’s never a bad idea to look at your regular spending to see if you have room to wiggle.
You probably have one or two streaming subscriptions that you are not using. If you’ve never compared and shopped for essentials like groceries and personal care products, you may be missing out on savings at discount retailers. Cooking at home more often may help.
Once you find an area to cut back, put the money you were planning to spend straight into savings. Even an extra $10 or $20 a month can help if your income is gone.
2. Automate your savings
Many experts agree that it’s easier to save money if you don’t see it in your checking account. Automating savings through your employer’s direct deposit system or bank is a great way to add emergency funds with minimal effort.
“‘Out of sight, out of mind’ fits here,” says Fox. “If the money isn’t in your regular checking account, you’re less likely to think of it as ‘your’ money. ”
One popular budgeting model, the 50/30/20 strategy, requires you to spend 20% of your income on savings and investments. Ideally, you should be able to fund both your emergency fund and your retirement savings on a regular basis, but if you have to choose between the two, prioritize your emergency savings.
Most of your retirement savings will likely be in 401(k)s, Roth IRAs, or other investment vehicles with tax incentives.
Emergency savings, on the other hand, should be readily available, such as in a high-yield savings account.
Plus, when you’re young, you have time to catch up on your retirement savings. In the event of an emergency, you may not always have time to “catch up” with your rainy day funds. That can mean resorting to expensive alternatives like credit cards and personal loans if you’re in a pinch.
3. Find extra money
Increasing your income may be the easiest way to increase your savings, but it’s easier said than done. Asking for a raise at your current job is worth a try, but it’s not a guarantee, especially for companies looking to cut costs.
If you have the time, starting a side job or part-time job will increase your income and increase your savings.
But don’t lose sight of your savings goals. More income doesn’t mean you need to spend more. Because you can afford it.
“Lifestyle creep is a very real phenomenon that affects most people as their salary increases,” Fox says. , try to maintain your current standard of living.”
If you don’t have time for another job, you can look for ways to earn passive income. It can be as simple as finding a better APY for him in a savings account, or it can be as big as renting a room in the house.
Finally, there may be “extra” money coming in for tax refund season. Consider putting that and other windfall cash into emergency savings for a quick boost.
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Do not miss it: The average emergency cost is $1,400. This is the exact amount you will save each paycheck to reach that amount in 2023.
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