12 Practical Ways to Build an Emergency Savings Quickly (Part 1)

NOTE TO ALL READERS: Although the tips that follow pertain mostly to freelancers in North America, the basic idea is universal: If you don’t have ample savings, you’re putting yourself and your business at risk. Even if some of the suggestions don’t apply to you, I hope they’ll at least get you thinking about this important topic.

As always, consult your financial advisor before taking action on important financial matters.

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For freelancers around the world, the events of the last few weeks have been a stark reminder that it pays to be prepared.

It pays to be more strategic about your overall business. It pays to promote yourself more effectively and consistently (not just when you need the work). And above all, it pays to have emergency savings you can turn to should your income decline temporarily…or should you be faced with large unforeseen expenses.

Especially if you’re planning on eventually quitting your day job to become a freelancer.

If you’re running a little light on cash reserves these days, now might be a good time to beef them up. Most financial planners recommend 3 to 6 months’ worth of living expenses (not income, but actual living expenses). Considering today’s volatile market, I say shoot for 6 months’ worth or more.

I realize that coming up with that kind of cash might seem overwhelming, especially if your business is a bit erratic right now. So I’ve compiled a list of 12 practical ideas to help you build those reserves fast — without having to live on cheese sandwiches for a year.

Below are the first 6 tips. The other 6 will appear in the next issue.

1) Log your expenses. First, you must determine where ALL your money is going. For the next month, keep a detailed journal of every dollar you spend. Then, group your expenses into 3 buckets: critical, important, nice-to-have. Cut out 80% or more of the nice-to-have
expenses for the next 6 to 12 months. Not thrilled with the idea? Come up with cheaper alternatives you can live with for a few months (you’ll find some ideas in the next issue).

2) Reduce your credit card payments. If you carry a credit card balance and you’re paying more than the minimum payment, scale that back to the bare minimum for a few months and divert the difference into a savings account (make sure you actually divert those funds; don’t spend them!). Remember, it’s just temporary. Skip this tip if your credit cards carry an interest rate of more than 18% (in which case, see tip #3).

3) Ask your credit card companies to lower your interest rate. Is your mailbox flooded with credit card solicitations? Keep an eye out for the best offers and use them to negotiate a better rate with your credit card company.

Let them know that you’ve been a loyal customer for X number of years and you’d like to continue that relationship. However, you’ve been getting better offers from other companies. You don’t want to jump ship, but you need a better deal. In most cases, they’ll agree to cut your rate. Just make sure to be courteous and calm from the start. Don’t get defensive.

4) Increase your auto insurance deductible. According to a recent article in USA Today, raising the deductible on your car insurance policy from $200 to $500 could reduce the cost of collision and comprehensive coverage by up to 30%. Raising your deductible to $1,000 could potentially lower your overall premium by 40% or more. Sure, you’re taking on more risk by doing this. But that’s precisely what your new emergency fund will be for!

5) Refinance your auto loan. As interest rates have continued to drop, now might be a good time to shop around for a better deal on your car loan. Even a 0.5% drop in your interest rate could potentially save you thousands over the remaining life of the loan. Best part: Refinancing your auto loan is much easier to do than refinancing your home loan. And filling out your loan request takes only a few minutes.

Some sources you might want to check out are LendingTree and ELOAN. Both of these links have more information on the auto-loan refinancing process and the type of savings you could expect.

6) Shop for gas sooner. Rather than waiting until you’re nearly empty (which forces you to buy gas at the closest gas station, regardless of price), start shopping for the best deal as soon as you get down to the half-tank level. Don’t make any special trips. Just keep
your eyes open as you drive around town. Once you find the best deal, fill up, even if you still have plenty of gas left.

This strategy will have you filling up more often. But by giving yourself a bigger shopping window, you’ll be averaging down your fuel costs over the course of the year.

If you live in the U.S. or Canada, you can use such websites as www.GasBuddy.com. This site allows motorists to share information about low-priced fuel in your neighborhood. Just punch in your state and zip code (or province and postal code) and you’ll get a listing of
dozens of gas stations and their prices in your area.

To be continued…