An airman drops money in a piggy bank

An airman drops money in a piggy bank

Posted by Tom Gray

Think you’re making too little money to save any? You may be selling yourself short. Even on a low income, it is possible to build up a cash cushion for emergencies. But it’s not something you can do overnight. It takes planning and patience.

Of course, a key step of saving is to take control of your spending. But you should plan to save even if you have not yet drawn up a budget. Setting a saving goal can help motivate your cost-cutting task. When you commit to put money aside, you have one more good reason to watch your pennies.

So what should that savings goal be? How much is the right amount for an emergency fund? Here are some tips to help you make a saving plan that works for you.

Set goals you can reach

Most financial planners say you should have an emergency fund to cover at least 3 months of your normal earnings. This is your cash “cushion” for unpleasant surprises—losing a job, sickness or injury, major car repairs, and the like. For many people, whatever their income, saving that much is easier said than done. One problem is that it takes time. If you’re on a low, fixed income and can set aside 10 percent of that money each month, you’re a good saver. But even at this rate, it will take you 2.5 years to get 3 months of cash flow in the bank.

That can be discouraging. You are less likely to give up if you break it up into small, achievable bites. “I’m a big fan of starting small and having some successes,” says Jerry Love, a certified public accountant in Abilene, Texas.

Love suggests saving at first for rare but large expenses. If you know you’ll get a $600 bill for car insurance a year from now, set aside $50 a month for it starting now. Then add a monthly amount to cover next year’s holiday shopping. If you can handle 3 or 4 items like these, you’re close to saving a month’s income. You have a cushion that can come in handy, and you have also developed a saving habit.

Build a moat on all sides of your savings

Your emergency funds have to be on hand when you need it. So don’t put it in any investment, like stocks, that can lose value. But you don’t want the money to be too close by, either. It’s only for emergencies, after all. If you don’t separate it from your checking or debit-card account, the temptation to spend it will be too great.

Think about those old-fashioned piggy banks—the ones you had to break to get at your money. They were designed to make saving easy and spending a little harder. Your own savings vehicle should work the same way. It needs to be set apart from the account you use for everyday spending. But it may still be too easy to tap. Cathi Brese Doebler, author of Ditch the Joneses: Discover Your Family, says you should think about saving at some other institution, such as a credit union. If it is in some other town and you need to make withdrawals by mail, so much the better. “A savings account at a local bank is easy to get to,” she says, and in this case that’s not an advantage.

Shopping around for savings vehicles can also pay off in better rates of return. The more interest you get, the more you are being rewarded for saving. Try to find an institution that pays higher interest for larger balances. This also rewards you for saving more.
One more way to build a moat around your money is to have someone else, such as an employer, put money directly into your savings account. Love says many companies now do this. If you are working, find out if a share of each paycheck can be sent to savings, with the rest going to your checking account.

This is a good way to “pay yourself first.” Once the system is set up, saving just happens. You don’t have to do anything more. If you are getting payments from a government program, check to see if a similar service is available.

Pay down debt, but keep the cushion growing

It gets harder to save if you’re trying to pay down debt at the same time. Credit cards charge high interest, so it’s good to pay them down as soon as you can. But if you have cash for emergencies, you can avoid using the plastic so it’s best to do both. Build the cash cushion while reducing debt. Split your money between the two. If you make weekly deposits to your savings, Doebler says, you might redirect one of these each month toward paying off credit cards. If you have more than one card, Love advises paying off the one with the smallest balance first.


For advice on saving, budgeting and credit, go to the Federal Trade Commission’s Money & Credit site at

**This Article Originally Appeared on Military One Source