Make It and Save

Unemployment is lasting longer for more Americans—here are 3 ways to boost your savings

Getty Images | Lu Shaoji

As employers hold back on hiring amid recession fears and rising interest rates, unemployed Americans are spending more time looking for jobs. 

In December, roughly 826,000 Americans reported being unemployed for 15 to 27 weeks, or about 3½ to 6 months, according to Labor Department data. That's up from 526,000 people who were unemployed for the same amount of time in April 2022.

Layoffs and extended periods of unemployment are a few of the many reasons you might have to use your emergency fund. Experts typically recommend aiming to save three to six months worth of expenses, but as longer periods of unemployment become more common, it may make sense for you to put away even more.

It's OK if you're not there yet. But remember: every dollar helps, says Katherine Fox, a certified financial planner based in Portland, Oregon.

"Three to six months of living expenses is a worthy goal, but even $50 or $100 could be a big help in getting you through a tight situation you can't foresee," Fox tells CNBC Make It.

Use these tips to beef up your emergency fund, whether you're just getting started or looking to add extra cushioning.

1. Cut back expenses

Cutting down your living expenses may be necessary in order to grow your savings. 

Unfortunately, there is only so much you can realistically cut from your budget, and you may not have any current expenses you can feasibly live without. But it's never a bad idea to go over your typical spending and see if there's any wiggle room.

Perhaps you have a streaming subscription or two you're not using. If you haven't comparison shopped for essentials like groceries and personal care items, you could be missing out on savings at discount retailers. And cooking at home more often may help if you frequently order takeout or delivery.

Once you find areas to make cuts, put the money you would have spent straight into your savings. Even if it's just an extra $10 or $20 a month, it could come in handy if you lose your income.

2. Automate your savings

Plenty of experts agree: It's easier to save money if you don't see it in your checking account. Automating your savings through your employer's direct deposit system or your bank is a great way to add to your emergency fund with minimal effort.  

"'Out of sight, out of mind' applies here," Fox says. "If you don't see the money deposited into your regular checking account, you are less inclined to think of it as money that is 'yours' to spend."

One common budget model — the 50/30/20 strategy — tells you to put 20% of your income toward your savings and investments. Ideally, you'll be able to routinely put money toward both your emergency fund and retirement savings, but if you have to pick one, prioritize emergency savings first

Most of your retirement savings will likely be in a 401(k), Roth IRA or other tax-advantaged investment vehicle, which means it won't be immediately available if you get a flat tire or break a bone.

Your emergency savings, on the other hand, should be readily available, such as in a high-yield savings account. 

Plus, when you're young, you have time to catch up on your retirement savings. If an emergency strikes, you won't necessarily have time to "catch up" on your rainy day fund. That could mean resorting to expensive alternatives like credit cards or personal loans if you find yourself in a pinch.

3. Look for extra money

Increasing your income might be the quickest way to build your savings, but it's much easier said than done. Asking for a raise at your current job is worth a try, but it's not guaranteed, especially for companies looking to cut costs.

If you have the time, starting a side hustle or part-time job can help boost your income, and therefore, your savings.

But don't lose sight of your savings goals — earning more doesn't mean you should spend more, just because you can afford it.

"Lifestyle creep is a very real phenomenon that affects most of us as our salary increases" Fox says. "Try to maintain your current standard of living while you focus on building up or boosting your emergency savings fund."

If you don't have the time for another job, you can look for ways to earn passive income. It could be as simple as finding a better APY on your savings account or as big as renting out a room in your home. 

Finally, you may have "extra" money coming your way as we head into tax refund season. Consider putting that, and any other cash windfalls, toward your emergency savings for a quick boost. 

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