Building an emergency fund when cash is scarce

The traditional rule-of-thumb for emergency funds is to have enough cash stashed away to cover 3 to 6 months’ worth of expenses. For many people, though, this sounds better in theory than in practice.

When you’re starting from scratch and don’t have a lot — or any — extra cash at the end of the month, consider these ideas to help grow your emergency fund.

Cutting expenses

• Review recent statements to find opportunities to save. Look over your bank statements and credit card bills from the last few months to see where all your income is going. Spend some time tallying up expenses in categories you have some control over, such as entertainment, dining out, clothing and online shopping.

• Cut down on lifestyle expenses. Identify areas to cut your spending and create new spending goals in categories that were problematic in previous months. Some of the easiest places to cut include online shopping, subscription services, clothing, movies and music. Once you reach your emergency fund goal, you can consider adding some of these spending areas back into your budget.

• Spend less on food. One of the biggest budget busters for many families is their spending on food — both at the grocery store and at restaurants. Control food spending by making a meal plan and cooking most of your meals at home, shopping sales at the supermarket, and making meals with ingredients you already have.

Increasing income

• Squirrel away windfalls. Consider adding windfalls such as tax refunds, work bonuses, or annual gifts you may receive from a family member to your emergency savings as soon as you receive it.

• Sell stuff you don’t need. Look around your home for items you rarely use and then sell unwanted stuff using an online marketplace. Used items that can fetch a good sales price include workout equipment, brand name clothing and accessories, small furniture and antiques.

• Add a part-time job or side hustle. Boost your income by picking up more shifts at work, asking for overtime, or getting a second job or side gig to fill your spare time. This step can help you bring more money home so you can add to your emergency fund.

Once you start looking for ways to spend less and earn more, there’s one final step that can help you grow your emergency fund. Make sure the money you find on both ends of the spectrum makes its way to your savings, either through manual or automatic transfers.

The best way to do this is by having a dedicated emergency fund in an account that’s separate from your regular checking and savings accounts. By moving your extra money into this account, you can grow your emergency fund with less temptation to spend it.

One of my primary objectives is to help you achieve your financial goals through a holistic approach that is tax-efficient in my wealth management and tax resolution practice. For more information, visit www.fredtfoxiii.com.

Fred T. Fox III is a Lawton business owner.