by Sarah Heller

Created on: January 22, 2010   Last Updated: January 23, 2010

With the current recession going on, many financial counselors have advised people to shore up their emergency fund.  When you’re living paycheck-to-paycheck, however, that can be hard to do.  Although many experts say that the best way to save money is to designate a certain amount to go to savings on the day that you’re paid, this can be pretty impractical for people whose paycheck is needed to pay bills.  The following methods, however, can help you to start saving that emergency fund.

Start by setting up a savings account that is linked to your checking account.  While many people have such an account, many do not use it.  The standard advice given to most people is to set up an automatic withdrawal from your checking account to your savings account once a month for a set amount (ie. $200).  Many people find, however, that this does not work in months where an unexpected expense comes up.  After overdrawing the account, many people stop the automatic payments and end up saving nothing. 

Instead, make a habit for yourself of transferring 10% of whatever is in your checking account to your savings account the day before your paycheck is deposited.  For example, assume that you have $200 left over the night before you get paid.  Transfer $20 to your savings account.  While it doesn’t seem like much, after 26 paychecks you would have $520 in an emergency fund.  For most people, that could cover a car or home repair.  Even contributing $2 a pay period would put $52 into a savings account, enough to cover a small overdraft from checking.

For those that do not have a bank account, try this method to save a portion of your cash.  Every night take all of the $5 bills out of your wallet and put them in a safe spot in your home.  Waitresses and other people who work mostly for cash particularly like this saving method because only a small portion of their pay is in $5 bills.  Wendy, a waitress at a family-owned Italian restaurant in Portales, swears by this method of saving.  “In my daily tips, I’ll probably only get two or three $5 bills.  Out of $150 a night, that’s only a few bucks.  In one month, though, I was able to save $200”.  By saving one $5 bill per day, you can save $150 a month.  Depending on your circumstances, you might want to consider saving all of your $1 or $10 bills.

People who have jobs with occasional bonus checks seem to do better, however, by saving only a portion of any income beyond their budgeted pay checks.  For example, Matthew, a local cable-company representative routinely gets a $250 “bonus” check from his company for every quarter that he meets his quotas.  While many of his co-workers spend this check on electronic gadgets, Matthew puts half of the check into his savings account.  The other half gets spent on electronics so that he has something to compare with his co-workers.  While Matthew still gets to spend his bonus check, he has also built up a small emergency fund in less than a year.  Recently, Matthew used his emergency fund to pay for an unexpected shortfall in his wife’s financial aid.  “Without the money, we would have had to put her tuition on a credit card.  Then when it came time to pay off the credit card, I would have had to use my entire bonus check”. 

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