Whether you’ve realized it or not, having an Emergency Fund is the difference between a life changing event and merely a depletion of funds. Answer me this:
If you busted a tire on your car, could you afford to buy another (without a credit card)?
If you totaled your car, could you afford another (immediately)?
If a natural disaster caused damage to your home, are you financially prepared to repair it?
If you got fired today, how long would you be able to support yourself financially?
All of these questions are designed to get you thinking about your “financial pillow.” An Emergency Fund isn’t only smart, it’s insurance for all the little things life doesn’t prepare you for. It helps you sleep at night. In my opinion, it’s a good idea to have at least 3 months worth of living expenses covered in your emergency fund, and 1+ year is even better. But obviously it’s not that easy to just put all the money in their, right? WRONG. I’m going to give you a few simple tips designed to get that Emergency Fund growing, without taking a hit to your current lifestyle!
- Get out of Debt – This goes without saying, but I’ll say it anyways. It doesn’t make sense to build a huge Emergency Fund when you still have large amounts of credit card debt. Chip away at that first, and once it’s down to a reasonable level, start throwing money at the Emergency Fund.
- Treat it like a bill – Decide on a comfortable number, or even better percentage of your income, and stick to it. Pay your Emergency Fund every month just like you do your cellphone.
- Start Out Small – Not everyone can afford $250+ per month, but that doesn’t mean you should put off starting your fund. Do what you can do, and if that’s $40 per month, than next month your fund will be $40 bigger.
- Automate your transfers. I have mine set up to deduct from my checking and into a special savings account once per month. I never have to think about it again.
- Open a high-yield online savings account – I use IngDirect, it’s online, free, and easy. And here’s a BONUS, if you open an account with $250 or more, using my referral link, they’ll give you a free $25. If you needed an account anyway, you can’t argue with free $$$. Contact me here for the referral link.
- Never spend anything less than a 5 dollar bill. This is an interestingly genius idea. If you hold on to all of your one dollar bills and coins throughout the day, and save them each night (in a coin jar or whatever), it adds up pretty quickly. You’ll be funding a big fat Emergency Fund in no time.
- Stash Gift Cash – Ever get cash gifts from mom, grandma, or other family or friends? Do the responsible thing, save it for a rainy day. You wouldn’t have missed it if you didn’t get it anyways…
- Tax Returns/Rebates – It might be difficult to convince you to stash your entire tax return away, since so many people look forward to that check each year. But stash a percentage. I’d go with 15-25% as a modest goal.
- Sell Your Junk – One man’s trash is another man’s treasure. Go through your closet, attic, junk drawers, etc. Ebay the junk that’s worth something and stash the rewards.
- Work an Extra Shift - Each month, work an extra shift and dedicate those earnings to your Emergency Fund. It’s time to be responsible, and sometimes that means sacrificing a day or two for the future.
Bonus – Freelance It – Have a skill that you could use for profit? Create a Craigslist or other personal ad offering your talents for a small fee. Do this once per month and save the money for a rainy day. Your Emergency Fund will thank you.
That’s it. It’s that easy. And even if each of these tips only totaled $5 per month, you’d have $50 to add to your emergency fund this month. Can’t argue with results, right?
What is your Emergency Fund building strategy? Leave it in the comments below.
