You never know when an unexpected expense will pop up. That’s why an emergency fund is so important.
According to a report from the Federal Reserve, 46 percent of American adults can’t cover an unexpected $400 expense. But it can feel difficult to start saving when you feel like you’re already struggling to make ends meet.
The good news is that you don’t need to set aside a huge amount of money at first. If you start small, it’s a little more manageable.
One of the most popular programs is the 52-week savings plan. It’s a good way to get in the habit of saving and build an emergency fund.
What is the 52-week savings plan?
The idea is simple: During the first week of the year, you put one dollar into savings. The second week, you save two dollars — for a total of three dollars in your bank account.
By the time you get to the last week of the year, you put $52 into the account. The total amount you should have in your bank account will be $1,378 at the end of the year. That’s a healthy amount for an emergency fund. Most small emergencies can be handled with that amount.
One of the reasons this money saving challenge is so popular is because you gradually work up to saving more each week. It creates good habits and encourages you to look for ways to set more money aside.
Take the 52-week savings plan to the next level
It’s possible to modify the 52-week savings challenge to save even more money. Here are some of the modifications you can make.
Keep adding a dollar a week
Don’t stop putting money into your emergency fund once the year is over. Keep it going. The first week of the following year, add $53 to your bank account. Then, the next week, add $54.
If you can keep it going, your emergency fund will continue to grow and you’ll be better prepared for what’s next.
Start with a different amount
If you want to do the 52-week savings challenge again, consider starting with a higher amount. Instead of beginning with $1, start with $2. You can add $2 a week to your contribution and supercharge your results. This works with $5, $7, or any amount you choose.
For example, if you decide to start with $5, and then go up by $5 each week, you will end up with $6,890 by the end of the year.
It takes a little more planning to say that you’ll set aside $5 the first week, then $10, then $15, then $20. It can really force you to reevaluate your priorities and take your savings to the next level.
Use the skip around method
One of the issues with the 52-week savings plan is the psychology of adding more each week. What happens if you end up with a pressing need early on?
David Carlson, the author of Young Adult Money, has an alternative that allows you to skip around. He suggests starting with larger amounts at the beginning. This will build your bank account faster and means you can use the emergency fund to pay for unexpected costs.
You can use a checklist, like the one from A Mitten Full of Savings, to keep track of which weeks you’ve completed.
Say you start out the year optimistic. You save $50 on week one and $43 on week two. You’re already up to $93. You check those weeks off on the savings chart. Perhaps you save $45 and $52 the next two weeks. Now you’re up to $190 in the account.
But then you end up needing to spend $100 to repair your fridge. You keep saving, but perhaps you check off the $11 box and the $12 box. This skip around method allows you to front-load your saving so that you’re prepared if your budget gets a little tight.
High-yield savings account
One of the best ways to get a little extra from the 52-week savings plan is to keep the money in a high-yield savings account. All of the amounts mentioned in the 52-week savings challenge are based on what you put in.
When you keep the money in the bank and earn a return, you have the potential to get even more. Your contributions compound. It’s not a huge amount, but it’s still something.
Don’t neglect your other savings
While the 52-week savings challenge can be a great way to start an emergency fund, it’s not practical if you want to build long-term wealth. For that, you need to boost your returns with the help of a tax-advantaged retirement account.
Use this money saving challenge as part of your overall efforts for better finances, but don’t expect it to replace a plan for retirement savings.
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2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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