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Emergencies happen, and as a nation we're not preparing for them. According to a new study from Prudential, nearly two-thirds of U.S. residents (63 percent) could not cover an unexpected $500 expense.
That's why everyone needs emergency funds — and Alaskans are uniquely positioned to start them. Use even 10 percent of this year's Alaska Permanent Fund dividend as seed money and you'll be on your way to dealing with future emergencies.
How big should an EF be? That depends on whom you ask. Some personal finance pundits suggest banking three to six months' worth of living expenses (rent/mortgage, utilities, food, basic debt service) in case of illness or layoff. Any other issues that pop up, from appliance failures to natural disasters, can also be covered by money from this fund.
Other money mavens say you need a year's worth stashed away. Nice thought, but this can make people feel defeated before they even start: Where will I get that kind of money? I'm lucky to cover the bills each month!
Luckily, even a small cash cushion will cover quite a few emergencies — and even if it doesn't pay for everything, your EF will reduce the amount you have to put on a credit card.
The Urban Institute did a study about EFs and low-income households. It found that families with savings from $250 to $740 were:
– 24 percent less likely to miss a utility payment
– 28 percent less likely to miss a housing payment
– 78 percent less likely to be evicted
Building an EF might seem daunting. However, it's almost always possible to squeeze a few dollars out of even the tightest of budgets.
10 ways to save
Here are 10 examples of what I call "stealth savings" tactics. All of them might not work for everyone, but at least a few of them should work for you — and the more tips you try, the faster your fund will grow.
1. Automate your savings. Have the bank or credit union set up a small withdrawal every payday. This keeps you from spending everything you have.
2. Pretend it's a bill. Download a free app like Bills Reminder, and set up a bill called "emergency fund."
3. Do the "weekly challenge." The first week of each month, put $1 in an envelope. The second week, put in $2. And so on. Result: $10 to $15 per month for the EF.
4. Gradually change a habit. Smoking, eating junk food, whatever. Figure out how much you didn't spend each week and bank it.
5. Pack your lunch. Accustomed to eating lunch out? Carry a meal two to three times a week and add the savings to your EF. (Corollary tip: Learn basic cooking instead of eating dinner out every night.)
6. Save your change. Empty most or all of the coins from your pocket/wallet into a jar. Wrap and bank it every few months.
7. Pick a number. Choose a number at random. Every night, check the bills in your wallet for any that end in the number. Bank them.
8. Save your savings. When you use a customer loyalty card and/or coupons at the supermarket or drugstore, set aside the money you saved.
9. Launder some money. Got a washer and dryer at home? Every time you do a load, put $1 or $2 in a jar.
10. Save it forward. Finally made the last payment on that certified pre-owned car or your kid's braces? Nice. Now: Keep paying the bill, or a percentage of it, into your EF.
You can do this
Sometimes, life throws curveballs right when we're at our most financially vulnerable. But as adults, it's up to us to deal.
Broke people can save. It takes time and sometimes it takes a little sacrifice. So take control of your cash, starting today. Putting even a small portion of your dividend into an EF is a good start.
[Want more ideas how to save for an emergency fund? Here are 33 ways]
A former Daily News reporter and author of the "Your Playbook For Tough Times" series, Donna Freedman writes about personal finance for a variety of money sites. She lives in Anchorage and blogs at DonnaFreedman.com.