If your car’s transmission failed, how would you pay for repairs? If you had to move out of your apartment tomorrow, would you be able to pay the security deposit on a new place? What if your dog gets sick and there are huge vet bills?
Life is full of what-if scenarios like those. They happen when you least expect it, and can catch you completely off-guard. I, for one, can relate to unexpected expenses on a daily basis. It is tough to keep up with everything as financial bullets come flying at you, but it is necessary to say the least.
If you don’t have a plan, you’ll need to go into debt to cover life’s emergencies. But debt isn’t the ticket to wealth.
If there is one thing that I have learned about life, then I know that you need an emergency fund.
An emergency fund is money that you’ve purposefully saved to cover unexpected, urgent expenses, hence the term “emergency.” It’s easy to access and isn’t tied up in CDs, investments, or anything else.
Your emergency fund is your buffer between you and additional debt. It’s your own protection against the yet-unknown financial crises you’ll face in your life.
It’s an essential component of your financial future. Like I said earlier, I can attest to its importance.
A good starting point is to get $1000 in your emergency fund. That’s not enough to cover everything, but it’s a start. A start is always step number one. If you are serious about getting started, then you should set a serious emergency fund goal for yourself.
Eventually, you’ll want your emergency fund to be a lot bigger. But that’ll take some time. And it can be discouraging to start with a lofty number when you’re standing at 0.
That’s why you should begin with a manageable goal. You’ll stay motivated to reach your goal, and having that “win” will propel you forward. A thousand dollars is an amount that most people are able to save quickly and it’ll get you in the habit of saving money for emergencies.
If money is tight and you’re living paycheck to paycheck, an emergency fund might seem impossible. Take a deep breath. It’ll be challenging, but it’s worth it. You’ll rest easier at night knowing you have a buffer in savings (I know I did!).
There are two main methods to funding your emergency fund. The first is cutting your spending. The second is earning extra money. Let’s look at both options.
Take a close look at where your money is going. Are there any expenses that you can cut? You might need to get drastic with your changes to move your financial needle in the right direction.
Here are some ways to shave money from your budget:
● Cut your cable or satellite TV
● Minimize your data plan for your smartphone, or drop it all together
● Meal plan to cut your grocery bill
● Stop eating out
● Decide if each purchase is a want or a need (cut out the wants!)
● Reduce your utility bill
● Compare insurance providers and switch if you’ll save
● Use generic prescriptions
● DIY as much as possible
● Utilize your library
If you’ve cut everything you can and still don’t have enough money for your emergency fund, then it’s time to bring some extra money into your budget.
● Sell unused items. Do you have unused exercise equipment gathering dust? What about your college textbooks? Do you really still need those? Go through your house and decide what you can live without. Then start selling. You can hold an old-fashioned yard sale, sell things on Craigslist, or use a buy-back site to earn extra money.
As a bonus, you’ll have less clutter by the time you’re done!
● Work extra hours. Are you eligible for overtime? Time and a half is a great incentive for spending extra time at work. Talk to your employer about putting in some extra hours to jump start your emergency fund. You don’t have to do it forever—just long enough to build your buffer. This is a solid option, but for single parents, it may not be viable.
● Start a side hustle. There are plenty of ways to bring in extra money on the side. Use your talents and start hustling. Here are fifteen ideas with low start-up costs that you can try:
● Being a nanny
● Starting a doggy daycare
● Selling crafts
● Freelance writing
● Teaching a class in your community
● Being a personal shopper
● Wrapping presents
● Signing up as an Uber driver
● Renting out extra space with Airbnb
● Running errands for busy or homebound people in your area
● Starting a mobile ironing and mending service
● Using your pickup to move stuff for people
● Helping people get organized
● Teaching or tutoring online
Once you start meeting your savings and earning goals, you’ll accumulate a pile of money that’s just sitting in the bank. It’ll be tempting to spend it whenever a desire comes up.
Don’t. Your emergency fund is not for:
● Buying holiday gifts
● Splurging on a new couch
● Taking advantage of a sale
● Paying for annual fees or memberships
Or anything else that isn’t actually an emergency.
If you find yourself spending the money you’re saving, take immediate action. Move these funds to a different bank to make it harder for you to access.
Your emergency fund is for emergencies. If you spend it all now, you’ll be forced to put your unexpected expenses on a credit card.
You will be thankful for the money when an emergency creeps into your life. And it will happen.
Creating an emergency fund is essential to your financial well-being. Start building one today. Once you’ve reached your first little goal, you can continue building it. Work toward getting three months’ worth of expenses in the bank.
Then you’ll be able to weather bigger emergencies without taking on additional debt. And avoiding debt is perhaps the most significant way to wealth!