62% of Americans have less than $1,000 in Savings. That means 62% of Americans will not be able to handle a financial emergency without borrowing money. I know it can be difficult to save for an emergency fund with low wages, student loan payments, rent or mortgage payments, but I am here to show you it is possible and important to have an emergency fund.
What is an Emergency Fund?
Emergency funds are 3-6 months of net income set aside for unexpected events in your life. Such as job loss, medical emergency, or car problems. The amount of your emergency fund will be determined by your situation, but we highly suggest 3-6 months of living expenses as the bare minimum.
What our Emergency Fund has Done for Us?
Our emergency fund started small with $500 dollars from a tax return six years ago. After continuously feeding this small fire we were able to set aside 6 months of living expenses. Knock on wood, but we have been very fortunate over the last six years and have only used our emergency fund a few times.
We first had to use our emergency fund to purchase my husband a beater car when gas got too expenses to drive his truck to work everyday. Another time was when he unexpectedly had no work for three weeks.
5 Reasons to Start an Emergency Fund
Less Financial Stress
Unexpected Job Loss
Relocation for emergency reasons or job opportunities
I found it helpful to set up a separate savings account for our Emergency Fund that we don't have easy access too. That way there is no temptation to take money out of the Emergency fund unless it fails under one of our predetermined Emergency categories.
Starting an Emergency Fund
Assuming you do not have an emergency fund yet, we are going to start from the beginning. There are many ways to start your emergency fund, of which I will give you a few. Remember you should continue adding to your emergency fund every month, even if it’s only twenty dollars.
Ways to Start Saving Now:
If you are fortunate enough to receive a tax refund, put part or all of your tax return into your emergency fund.
Sell items around the house that you know longer use or need.
If you are able to jump start your savings with a small nest egg it will motivate you to continue seeing your savings grow larger and larger each month.
Decreasing expenses might just be the easiest way to increase your savings. And when I say easy, I mean easy with a healthy dose of self discipline. Things to cut back on: dining out, entertainment such as going out to the movies, impulsive buying when you see a “good deal”, sticking to your grocery list when you go to the grocery store, pre planning meals so you know what to get at the grocery story, I could go on and on and on.
Check out my Finance Pinterest Board to find some great budgeting tips!
Some other things you might want to consider cutting back on are monthly subscriptions that you do not use or need. Examples: do you really need HBO, Netflix, Hulu, and cable? Personally we just have Netflix and it works great for us. It also helps to make us more active around the house.
Are you like me and love coffee/caffeine? I use to get a latte and a Red Bull every day. Latte was on my way to work and Red Bull was on my lunch break. That was a total of $8 a day on just two drinks! I was spending almost $250 per month on drinks. Once I was able to cut these two expenses from my everyday routine we quickly saw an increase in our savings.
This one can be a little more difficult than decreasing expenses, but increasing income can be another great way to increase saving toward your emergency fund.
My husband and I shared a car for 5 months until we were able to save up enough money to purchase a second car for me. While already living on a very tight budget there was no room in our budget to save up for a second car. So my husband took on a part time job while working full time for 6 months in order for us to save up for our second car.
The key to building your savings is putting everything you can away until you hit your determined amount. Remember even after you hit your determined savings amount continue putting money into your emergency fund each month.
It might be helpful to set up an automated savings so each payday money is transferred to your savings account before you have a chance to spend it. Start with a small amount of $20 a month, and gradually work your way up.
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