This year’s pandemic highlighted the importance of having an emergency fund if you lose your primary source of income for an extended period of time.
But how do you build an emergency fund if you don’t have any extra money? The easiest way to accomplish this is by decreasing expenses. Here are some creative ways to increase your cash flow by cutting your spending.
Temporarily suspend expensive options. Ditch your $150 cable bill for a $20 streaming service. Cook your meals from scratch instead of purchasing pre-packaged food. Replace week-long vacations with three-day weekend getaways. Until you get your emergency fund fully financed, consider less expensive alternatives for items you normally purchase.
Radical cutbacks for a set period of time. Can your family live with one car instead of two? Instead of downsizing from cable to a streaming service, what about getting rid of television altogether? Consider if there are areas you’d be willing to make a radical (and temporary) change to free up some cash.
Track your spending. When you go on a diet, nutritionists may recommend counting calories. When going on a spending diet, consider tracking your purchases. Do you spend $500 a month at coffee shops? Do you subscribe to 5 different streaming services on top of buying the newest electronic gadget every month? You may discover problem areas you didn’t know about once you start writing down your spending in a notebook or on a spreadsheet.
Stick to a list. Avoid impulse purchases by making a list of items you need to purchase, then sticking to the list. You can use this strategy with both in-person and online shopping. At the beginning of every month, write down the household items you need to purchase that month and do your best not to deviate from it.
You may need to get creative with your approach, but decreasing expenses is one way to free up some cash to stock an emergency fund.