5 Tips to Build Up an Emergency Fund This Year

Life is full of twists and turns. So when an unforeseen home repair, illness or job loss happens, having a stash of cash set aside can make the difference between a financial disaster and a minor inconvenience.

However, roughly one-third of American adults (nearly 72 million people) have no emergency savings to fall back on if they had to deal with a financial crisis, according to a survey released by NeighborWorks America, a community development organization. A recent survey by GOBankingRates found that 62 percent of Americans have less than $1,000 in savings ^[1].

Although spare cash might sometimes seem hard to come by, building emergency savings doesn't have to be difficult. Here are five easy tricks you can use to quickly save $5,000 for an emergency fund in 2016.

1. Switch to a High-Yield Savings Account

Annual Savings Example: $100

Typically, the best place to keep an emergency fund is in a savings account with a bank or credit union. These accounts offer easier access to your money ^[2] than certificates of deposit (CD), but not so easy that you're tempted to access the funds on a whim. By keeping your money in a savings account, it remains safe, and you'll earn better interest than you would on your checking account — and certainly better than if you kept it under your mattress.

When it comes to savings yields, all accounts are not created equal. Current rates on a basic savings account at many banks range anywhere from 0.01% APY to 0.25% APY. Although this is better than earning nothing, your money is not growing as fast as it could. There are, however, a few banks that offer higher-than-average savings account rates. For example, the savings account from MySavings Direct offers an impressive 1.00% APY.

If you were to put $10,000 in a MySavings Direct savings account ^[3] and let it sit for a year, you would earn $100 in interest. If your APY was only 0.01%, you would earn 50 cents; with a 0.25% APY, you would earn $12.50.

By moving your emergency savings into a high-yield savings account, you have the advantage of earning a higher interest rate and growing your funds faster, while still enjoying the safety and accessibility of a simple savings account.

2. Leverage Cash-Back Rewards Cards

Annual Savings Example: $325

One of the biggest reasons to have an emergency fund is to avoid going into debt when you have an unexpected expense. So it might sound counterintuitive to suggest using credit cards to build up your emergency fund, but that's just what John Rosenfeld — head of Everyday Banking at Citizens Bank ^[5] — suggested you can do.

"Using a cash-back rewards card for your everyday purchases can help you save money, provided you pay off your full balance each month," he said. Credit cards can offer up to 1.80 percent cash back on your purchases, which can quickly add to your savings balance. Plus, a credit card that gives you an extra bonus can help grow your savings as well, he said.

Let's say you have Chase's Freedom card, which offers 5 percent cash back on up to $1,500. If you spend $1,500, that's an extra $75 you'll get back. You can also get unlimited 1 percent cash on all other purchases, plus a $150 bonus after you spend $500 on purchases in the first three months following your account's opening. So if you charge $10,000 on your credit card in 2016, you can potentially have $325 to add to your emergency savings fund.

3. Eliminate 'Slow Leaks'

Annual Savings Example: $3,615.48

Bank fees are some of the most common, yet unnecessary, expenses paid by consumers, according to Benjamin Glaser at DealNews.com ^[6]. Take a look at the average fee for these three banking services, according to Money-Rate.com's mid-2015 survey of bank fees:

Checking account monthly fee: $13.09
ATM fee for non-customers: $2.71
Overdraft fee: $32.44

Getting rid of just the most common three fees each month — ATM, overdraft and monthly maintenance — could save you more than $500 a year. Finding a fee-free checking account could save you more than $157 alone.

Other common fees you might be paying include 401k fees, investment fees and cash advance fees. Check with your financial planner or financial institution to find out if you're overpaying in fees. A typical American who starts earning a median salary at age 25 is expected to pay $138,336 in 401k fees over their lifetime, according to The Motley Fool. Since the median expected retirement age is 65, according to a Gallup poll, that's nearly $3,460 a year for 40 years.

Glaser also thinks that the new year is a perfect time to review your phone bill for additional ways to save. "Carriers have introduced a confusing array of new payment options over the last year, but if you know your phone usage habits well, you could save money," he said. With low-cost providers like Republic Wireless and Ting offering monthly service for around the price of a few cups of coffee, now's the time to really take advantage of the potential cost-savings.

Jeffrey Christakos of Westfield Wealth Management ^[7] found his money leaking in the form of eating out for lunch. He suggested making lunches at the beginning of the week and freezing them until you plan to use them. "We would take a sandwich with us to work and let it thaw out during the morning hours," he said. "Otherwise, we would have gone out to lunch and eaten random meals at expensive prices."

It can be well worth your time to detect and eliminate slow leaks. With a little legwork, your annual savings could be more than a few thousand dollars.

4. Automate Emergency Savings

Annual Savings Example: $120 to $2,000 or more

Leslie Tayne ^[8], financial attorney and author of "Life & Debt," said her No. 1 tip for people looking to build an emergency fund is to arrange for automatic contributions ^[9]. She suggested setting up your direct deposit to send a portion of your paycheck into a savings account each month. "You will find that you will miss that money less if you do no t realize it was there in the first place," she said.

If your annual salary is $40,000, for example, saving just 5 percent of your salary each month for a year will net you a total of $2,000 that you can put toward your emergency fund. To really supercharge your savings efforts, decide in advance to put a portion of any lump sum you receive directly into your emergency fund. Whether it's a tax refund, a birthday gift or a work bonus, depositing these amounts in your emergency fund ^[10] will help your account grow even faster.

Remember to keep your emergency account active, and continue to make contributions even after the balance has reached your initial goal. The last thing you want to do is have to start from scratch to build it up again after your next emergency. Tayne suggested adding a minimum of $5 to $10 a month to keep your emergency savings active. Although small, each amount deposited will add up over time.

5. Stop Cutting Back, Start Earning More

Annual Savings Example: Varies

The best way to accumulate an emergency fund is to make more money by monetizing your unique expertise, according to financial advisor Rob Wilson ^[11], whose practice provides advice and guidance to professional athletes, entertainers and young executives. He said he tells his clients, "If you focus on living up to your potential, you'll never have to worry about living within your means."

"Saving $3 per month on your utility [bill] isn't going to get you anywhere fast," he said. "To save $5,000 in one year, you need to find a way to earn an extra $96 per week."

To find that extra $96 a week, consider the many ways you can make money online: selling items, creating a blog, taking paid surveys and more. You might even want to think about starting your own business.

If the idea of an emergency savings is new to you, don't worry about trying every tip at the outset. Start with one simple concept, like setting up your high-yield savings account and build from there.

There's really no wrong way to save for emergencies, besides inaction. So start now. Choose to implement at least one or two tips from those offered above, and let momentum carry you the rest of the way.