Archive: Towfiqu barbhuiya/Pexels (Pexels License). Cropped and resized. General archive photo.
If your pay is different every month, an emergency fund can still start small, and even a small amount can help. The goal is a cash cushion for surprise bills, like a car repair, a medical bill or a month with less income.
This affects gig workers, freelancers, tipped workers and anyone whose hours change from week to week. The Consumer Financial Protection Bureau (CFPB) says that if your pay is not the same each week or month, putting money aside can feel difficult, but even a small amount can provide some financial security.
Why a cushion matters
The CFPB says that without savings, even a minor financial shock can set you back, and if it turns into debt it can have a lasting effect. People with less savings may rely on credit cards or loans, which are generally harder to pay off, or pull from other savings such as retirement funds. Paying an unexpected bill with a credit card or loan can make the cost grow because of interest and fees.
How much to aim for
The CFPB says the right amount depends on your situation. It suggests thinking about the most common unexpected expenses you have had before and what they cost, and using that to set a goal.
Ways to build it when income changes
The CFPB lists several strategies. These are the ones it ties most closely to irregular income:
- Manage your cash flow. Cash flow is the timing of money coming in and going out. If the timing is off, you can run short at the end of the week or month. You may be able to ask landlords, utility companies or card companies to move bill due dates, and you can move a little extra into savings in weeks when you have more money.
- Use one-time money. A tax refund can be one of the biggest checks of the year, and holidays or birthdays may bring cash gifts. Saving all or part of that money can start your fund quickly.
- Set a goal and track it. A specific goal and a regular check on your progress can help you keep going.
It also describes automatic transfers from checking to savings, which it says are best for steady income. If your pay changes, watch your balance so an automatic transfer does not cause an overdraft fee, and adjust the amount when your income changes.
Where to keep it, and when to use it
The CFPB says an emergency fund should be safe, easy to reach and not too tempting to spend. Options it lists are a bank or credit union account, which it calls generally one of the safest places for money, a prepaid card, or cash. It warns that cash can be stolen, lost or destroyed.
It suggests setting your own rules for what counts as an emergency. If you do use the fund, it says not to be afraid to, and to build it back up afterward.
JBizNews Desk | Washington
© JBizNews.com. All rights reserved. Unauthorized reproduction or redistribution is strictly prohibited.
