Stash some cash, get some sleep
Building an emergency fund is possible, and doesn't require too much sacrifice.
March 4, 2002: 10:37 a.m. ET
By Annelena Lobb
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NEW YORK (CNN/Money) - Saving money for a rainy day may feel impossible. After all, there always seem to be too many bills and expenses, not to mention all those pricey goals you're working toward, like retirement or sending your kids to college.
But building a rainy day fund doesn't have to be excruciating. You can accomplish a lot just by preserving a few extra bites from your paycheck and playing a few money tricks on yourself. Before you know it, your emergency fund will be ready to go.
And it's a good thing, too, since financial emergencies pop up from time to time and can take many forms -- from layoffs to transmission problems to outsized medical bills. That's why having three to six months of expenses can mean the difference between a brief hiccup in your financial life and years spent digging yourself out of debt.
With that in mind, here are five tips to help you build your cash stash.
Be a sleuth. If you don't know where your money is going, you're not going to be able to save more of it. That's why a good first step is to track your spending for two to four weeks. Take special note of all the money you withdraw from the ATM. You may find you spend a lot more than you imagined on dinner out, late fees at Blockbuster or mid-afternoon lattes.
Once you see where your dollars go, start to cut out those things that don't give you any real pleasure. After all, why pay good money to be underwhelmed? Then set spending limits to help you achieve your new savings objective. If you want to save $300 a month, for example, figure out how much you should allot to things like groceries, utilities and entertainment in order to make that happen. (For help in getting your budget right, click here.)
Remember, there's no time like the present. When you get your paycheck, siphon out your savings portion immediately. If you dawdle, you'll probably find a way to spend the money on something else. "The minute everyone gets their paycheck, they say, okay, we're going out to eat this Friday night," said Carrie Cole, a certified financial planner in Livonia, Mich. "Put money aside first -- even if it's just $20 skimmed off the top of your check."
The good news is many employers will let you direct-deposit money from your paycheck into more than one account.
And if you're in line for a raise, bonus or cash gift, you might deposit all or part of that money into an emergency fund.
Get creative. There are lots of ways you can cut costs, said Matt Coffin, CEO of LowerMyBills.com, a Santa Monica, Calif.-based company devoted to lowering consumers' monthly bills.
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 KEEP THE UMBRELLA HANDY
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On a rainy day there's no point having an umbrella if you can't get to it. The same goes with your emergency savings. For quick access to cash, stick with more liquid assets, like a money market account or short-term certificate of deposit.
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He suggests trying to find less expensive ways to do the things you like, rather than eliminating them entirely. "Want a drink? Go to happy hour," Coffin said. "Want to see a movie? Go to the half-price matinee. Museums, outdoor activities and reading are all economic ways to entertain yourself, too."
You also might make a nice dinner at home instead of eating out. Buy cheaper seats at a ball game or a show. Sell old clothes to a consignment shop. Carpool to work. Or swap babysitting services with other parents in your area. Indeed, cost-cutting ideas are limited only by your imagination. For other suggestions, click here.
Re-route some of your 401(k) contributions. Yes, your 401(k) is one of the best retirement savings options around and, in general, it's a good idea to contribute as much as you can. But you could hurt yourself if you become retirement-rich and cash-poor. If you have no emergency fund, you might temporarily reduce your 401(k) contributions. That is, put in at least enough to get the company match and put the rest into an emergency fund until you have built up a few thousand dollars, said certified financial planner Mari Adam of Boca Raton, Fla.
That way, an emergency expense won't force you to take a loan or early withdrawal from your 401(k). That's some of the most expensive money you can draw on before retirement -- because penalties, taxes and lost time for compounding will substantially shrink your nest egg.
Try a mind game or two. If you're still having a tough time tracking and saving your money, try going on a cash-only diet for 60 days. That's what certified financial planner Pat Jennerjohn of Oakland, Calif. suggests to clients who just can't figure out where their money goes. By cash-only, Jennerjohn means no credit cards or debit cards, since they allow you access to more money than you need. You may, however, use checks to pay for bills that must be mailed.
Another trick Jennerjohn recommends is to put one-third of your net pay into your savings account every month, as soon as you get paid.
One-third may seem like a lot, and Jennerjohn understands if people sometimes dip into those savings to cover some expenses. But once people develop a savings habit (and their account balance grows), she finds they become more reluctant to tap that money. "They think, once I've built my little pile, I don't want to make it smaller," she said. (To find out how quickly your money will grow, try our savings calculator.)
Finally, if money is really tight and you just can't save a full three to six months' worth of expenses, you have another option if you own your home. You might consider getting a home equity line of credit (HELOC), Adam suggested. You can obtain a HELOC without closing costs if you shop around, and interest rates are very favorable. That way, you'll have money on tap if you're in a pinch. Just don't tap the line unless you have a true emergency and don't take out more than you can afford to repay. 
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