Prioritizing savings is key to financial well-being. And building an emergency fund, which generally represents multiple months of living expenses, according to experts, is one way to do so.
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These safety nets are not only key to financial wellness but might also help you avoid debt or dipping into retirement savings. Whether it’s a medical emergency, the loss of a job or a busted car, these can often put a toll on finances and derail savings.
Surprisingly, a recent Empower study found that 21% of Americans have no emergency savings, while 37% said they couldn’t afford an emergency expense of more than $400.
“Conventional wisdom tells us to plan for the unplanned by socking away enough to cover three to six months of expenses. Yet, Americans have accumulated a median emergency savings of just $600,” reported Empower.
This lack of preparedness can have very damaging consequences. A separate LendingTree survey showed that 27% of Americans said they’re in debt due to an emergency expense they couldn’t cover.
Of course, inflation and soaring rates — which are affecting everything from loans to mortgages — coupled with the resumption of student loans have all been hindering savings for many Americans. As for next year, it remains to be seen what economic changes the election will bring.
Yet, experts said that with a plan and by living below your means, you can grow your emergency fund in 2025. Here are tips our experts recommended to help you save more of your money.
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Loud Budgeting
Loud budgeting has been one of the financial catchphrases of 2024 — but far from being a fad, experts said it’s worth a try to help you grow your savings and live below your means.
In essence, loud budgeting helps you prioritize living within or below your means by being honest and forthcoming about your financial needs and priorities.
“It means spending money on what’s important and cutting costs on the rest,” said personal finance expert and Raisin president, Ben McLaughlin. “We are in the midst of a cost-of-living crisis and wages are stagnant — many of us are looking for ways to save money and grow our savings.”
According to him, if you’re vocal about needing to cut excess spending and save for the future, you can reorient your behavior toward quality time and experiences, rather than spending money as the default.
“That’s not to say you can never enjoy a nice restaurant or fancy coffee again,” he added, “but if you need to save money, maybe these experiences can become special occasions instead of regular expenses.”
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Start Small and Keep Building
Having multiple months’ worth of living expenses covered in your emergency fund can sound daunting, so starting small might seem more feasible. What matters is to do so regularly.
Uziel Gomez, founder and financial planner at Primeros Financial, suggested establishing smaller, manageable goals to maintain your momentum and work steadily toward this larger goal.
Meanwhile, McLaughlin emphasized contributing regularly toward an emergency fund.
“Even if it’s only $10 a week, developing your saving ‘muscle’ will set you up for future success,” he said, adding that you can maximize your savings by keeping your emergency fund in a high-yield savings account, where it will earn interest and work harder for you.
Ditch the Plastic as Much as You Can
One of the best things you can do to ensure you are living below your means is to avoid abusing your credit card, according to Erika Kullberg, an attorney, personal finance expert and the founder of Erika.com.
Of course, a credit card is a valuable financial tool that can help you build your credit and earn rewards such as cashback and airline miles. But Kullberg said the only way to make a credit card work in your favor is to pay off your balance in full each month.
“You should never charge a purchase you can’t afford to pay off at the end of the month unless it’s an absolute emergency. Ideally, you will have an emergency fund ready and waiting so you can avoid doing that,” she said.
Follow Buffett’s Advice
In terms of the best way to build an emergency fund, disciplined planning and budgeting are key.
Specifically, according to Robert R. Johnson, a chartered financial analyst (CFA) and professor of finance, individuals should not simply budget and track expenses, but they should also budget for savings.
Johnson said the best way to go about it is to follow Berkshire Hathaway Chairman and CEO Warren Buffett’s advice: “Do not save what is left after spending, but spend what is left after saving.”
In other words, if you truly want to make savings a priority, it cannot be residual — what is left over.
“You don’t successfully build wealth by simply taking what you have left after all your expenses. We accomplish what we prioritize. Prioritize savings, and invest those savings,” said Johnson.
Additional Ways To Live Below Your Means
Experts also shared a slew of other ways that can help you live below your means.
For instance, Chad Gamon, certified financial planner (CFP) and owner of Custom Fit Financial, recommended automating your savings and increasing your savings rate periodically to grow your emergency fund more aggressively. This can ensure your savings are a priority and not an afterthought.
If you’re in a two-income household, another way to live below your means is to try living off of a single income as best you can.
“Try using one partner’s income solely for living expenses and discretionary spending, said Scott Lieberman, the founder of Touchdown Money. “Anything beyond that with a second income is only for paying off old debts or saving to build your fund.”
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This article originally appeared on GOBankingRates.com: 5 Tips To Live Below Your Means and Grow Your Emergency Fund in 2025
