A Step-by-Step Guide to Building Your Emergency Fund in the New Year

It has been a year full of financial lessons. People in America and worldwide are getting their financial plans back on track after reeling from the global pandemic, layoffs and inflation. Chances are that you may have dipped into your investments, retirement savings or emergency funds to meet your expenses in the last year. 

According to a recent report from Betterment at Work, only 52% of Americans have a financial cushion to rely on in emergencies. That’s a drop of 7% from 14% in 2021. Other data from the U.S. Bureau of Economic Analysis reveals that the average personal saving rate is at an all-time low of 3.4%, a decline from 32%, in April 2020. 

If you are one of those who have depleted their financial savings, building an emergency fund from scratch may feel like scaling Everest. But fret not, because we giving you a step-by-step guide to rebuilding your safety net for whatever life throws your way in 2024.

Ways to Build Emergency Fund in 2024

1. Set Clear Goals:

Define why you want to build an emergency fund. Whether it's to cover three months' living expenses or handle unexpected medical bills, having clear goals will motivate will help.

2. Work on Your Budget:

A budget will tell you where your money is going. You can use this to identify areas where you can cut back and allocate a portion of your income specifically for your emergency fund. Determine your average monthly expenses, including rent, utilities, groceries, and discretionary spending to figure your discretionary income. 

3. Automate Recurring Transfers:

Set up an automatic transfer from your regular contributions to investments, loan payments, EMIs, etc each month. Automation will prevent you from making impulsive spending.  ensures that you prioritize your emergency fund without having to think about it, making saving a seamless part of your financial routine.

4. Start Small, But Start:

You don't need to save a fortune overnight. Even $50 a month can make a difference over time. 

Let’s take the discretionary income example. Now, you might be tempted to save $2000 to fulfil your goal faster. You have to be realistic about how much you can allocate money to your emergency fund.

The ideal calculation is to divide your goal by the amount you want to allocate every month. This will help you know the timeline to build your emergency fund. For instance, if your goal is to have $4800 in your emergency fund, you will need to allocate at least 400 every month for a year. 

5. Side Hustles and Extra Income:

Nearly 8.4 million people in America had multiple jobs in 2023 according to the Labor Department. Of this 5 million held one full-time and one part-time job. Nearly 2 million had two part-time gigs. 

Considering side hustles, freelance opportunities or even two jobs is feasible. You can funnel this extra money directly into your emergency fund. It's a proactive way to accelerate your savings without straining your budget.

6. Regularly Reassess and Adjust:

Life changes, and so do your financial needs. Regularly reassess your goals, income, and expenses. Adjust your savings plan accordingly to ensure your emergency fund remains aligned with your current situation.

If you reach your goal, do not stop. Continue your saving routine even if you think it is not necessary. You can form a new goal to go on a vacation or make a down payment for an asset like a vehicle or house.

7. Cut Unnecessary Expenses:

Review your spending habits and identify areas where you can cut back. Opt for homemade meals, cancel unnecessary subscriptions, and think twice before making impulse purchases. Redirect the saved money towards your emergency fund.

Resist the urge to dip into your emergency fund for non-emergencies. Remind yourself of the purpose behind this fund – to provide a financial cushion during unexpected situations.

8. Credit Card Rewards & Tax Refunds:

Several credit cards offer cash-back rewards of up to 2% every time you shop or pay your bills. Make every penny from your cash rewards count and put this in your emergency fund. 

If you make less than a certain amount per year, the IRS will most likely refund the taxes they took out of your paycheck. Placing this money in your emergency account will boost it by a significant amount. 

Building an emergency fund is a journey towards financial resilience and peace of mind. By following these steps and staying committed to your goals, you're not only creating a safety net for the unexpected but also establishing healthy financial habits that will serve you well in the years to come. Here's to a financially secure and empowered New Year!

How to Negotiate Credit Card Debt: A Step-by-Step Guide

Early in August, the Federal Reserve Bank of New York stated that credit card debt levels have crossed $1 trillion for the first time in America’s history. “Credit cards are the most prevalent form of household debt and continue to become even more widespread,” reads the New York Fed’s blog.

Credit card debt can feel like a never-ending rollercoaster. If you are running behind on credit card payments, there is one way to navigate the crisis. You can negotiate payment terms with the creditor and pay less than your original debt amount.

You've got more power in this situation than you might think! It's time to roll up those sleeves and dive into the world of negotiating your credit card debt like a pro.

Step 1: Know Your Numbers

Before you start any negotiation, gather all the information such as total debt, interest rates, minimum payments, and any fees. This is your starting point, and it's crucial. Study what the other creditors are offering as this may come in handy while negotiating.

Familiarize yourself with the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Billing Act (FCBA). These acts are here to protect you, so know them well.

Step 2: Consider All Debt Settlement Options

2.1 Workout Agreement

In a workout agreement, you can mutually decrease interest rates, forgo cancellation fees with your creditor or extend the deadline. It can also include lowering monthly instalments and your borrowing limit.

Before working on this agreement, chalk out a realistic timeline and interest rates that are feasible for you. You can even take into account any upcoming promotions, additional incomes and expenditures in the foreseeable future while planning this.

2.2 Lump-Sum Settlement

In a lump-sum settlement, you can settle the debt in one go. You can propose a lower amount of the total sum you are owed if you have that kind of savings. Remember, you can also borrow from your family or friends to settle this debt and repay them later. The only advantage here is you won’t have to pay any interest to your loved ones. 

Opt for this option only if you have proof that you can settle the amount in a single payment. If you settle for a lesser amount, you might be considered for a tax. Consult a tax professional before finalising the deal.

2.3 Hardship Plan

You can opt for hardship or forbearance programs if you have gone through a medical crisis, injury, sudden job loss or any other financial emergency. Your creditor will consider reducing your payment or interest fees based on your case.

Please note that not all creditors offer hardship programs.

Step 3: Pick a Negotiating Route

You can either hire a debt settlement company to help you negotiate on your behalf or do it by yourself. If you are on your own you can either write a letter, call your creditor or have an in-person meeting to discuss debt settlement. Keep a record of all the conversations and note down every point for future reference.

Step 4: Lay it All Out

This is your chance to spill the beans. Explain your situation honestly and clearly. Maybe you lost your job, had unexpected medical expenses, or just got a bit carried away with online shopping. Whatever it is, own it and let them know you're committed to finding a solution.

Step 5: Know All Risks

Once the creditor has agreed to negotiate, ask them all the risks associated with the new deal. For instance, in a lump sum agreement, your credit score will suffer or your account will be temporarily frozen. In other cases, may need to pay additional taxes. Discuss what happens if you are not able to go through with the new deal.

Step 6: Get it in Writing

Upon reaching an agreement, make sure you get all the details in writing. This includes the agreed-upon settlement amount, the due date, and a confirmation that the debt will be considered paid in full after the agreed-upon amount is paid.

Step 7: Keep Your End of the Bargain

You've made a deal - now it's time to stick to it! Make sure you pay the agreed-upon amount by the specified due date. This is your ticket to debt freedom, so don't drop the ball now. A few weeks after you've settled your debt, pull your credit report and make sure it reflects the agreement accurately. It should show the debt as "settled" or "paid in full," not as a lingering balance.

Remember, negotiating credit card debt is a skill that takes practice. Don't be discouraged if it doesn't go perfectly the first time. Stay persistent.