How to Save For An Emergency Fund
Any time we talk about budget and financial health on Living Rich With Coupons, there are two key components that we repeatedly emphasize: a current budget and a healthy emergency fund. However, while the budget only takes time to create, an emergency fund takes money – something people in “financial distress” don’t have .
However, you have to start somewhere and a small emergency fund is as good a place as any. In fact, financial guru Dave Ramsey actually calls the $1,000 “baby emergency fund” the first and most critical step in gaining control of your finances. By stashing away even $1,000 you insulate yourself against unforeseen expenditures, so-called irregular expenses that have the potential to topple your budget or run up your credit card debt.
The last thing you want to do if you are trying to pay off debt is create more of it, which is why the emergency fund is so crucial and even needs to take priority over the repayment of current debt. However, you can keep on track with your debt payments and regular bills and save an emergency fund at the same time by dedicating one or more specific tasks to building up the fund. And, with dedication, you can even achieve this first crucial step in as little as a month.
All you need is a plan.
Five Steps to $1K – A Basic Savings Plan
If, like most people in financial distress, all of your current paycheck goes toward bills and debt obligations, saving $1,000 may seem impossible. And, in terms of taking money out of that pool, it probably is. That is why you need to be a bit creative and proactive in your efforts to start that initial savings account.
In other words, you need to generate money from somewhere else.
Not everyone will be able to do all of these steps. However, collectively they can easily add up to $1,000 or more in one month’s time. It all depends on the amount of time you have to dedicate to the cause.
1. Sell Your Stuff
One of the easiest and least labor-intensive ways to get cash is to recoup it. From garage sales and Craig’s List to consignment shops and used book stores, there are plenty of ways to turn your excess “stuff” into excess cash. Plus, there’s an added bonus to this method – psychological research has proven that less mess and clutter actually reduces daily stress by reducing the amount of visual stimuli and distraction around us each day.
2. Sell Yourself
Is there something you are really good at, like cleaning, or something you especially enjoy, like knitting? Use those talents and hobbies as a quick way to earn cash. Offer to help neighbors with spring cleaning or fall yard cleanup. Knit a few dozen hats with leftover yarn and offer them for sale at a yard sale or community event. Finding ways to use what you like or do well for quick, one-off jobs is a great way to jump start saving without a long term commitment.
3. Get a Piggy Bank
Just like little kids who love to put coins in their banks and watch it add up, the simple habit of emptying out your pocket change into a bank each evening or stashing away every $5 bill you get can help you save without thinking. Since this is pocket money putting it away will only prevent you from spending it on frivolities (another great way to save, by the way), plus it will feel less burdensome since it is only a few dollars at a time.
4. Get a Second Job or Work Overtime
Not everyone has the time to commit to regular work or the type of career that allows overtime hours, but if you have the time and/or opportunity, this is a great way to get extra cash in large amounts, fast. If you don’t want the burden or stress of a long-term job, consider looking for seasonal work such as retail during the holidays or in the vacation industry during the summer. Commit yourself to one season and save everything you make.
5. Change Your Bills
If you have a solid budget that accounts and pays for all your current bills, reducing one or more of them and saving the difference is a fast way to extract money from your current paycheck without accumulating more debt. Shop around for things like auto and homeowners or renters insurance, consider cashing out whole life insurance policies and replacing them with term life insurance for over 40s, cut back on your cable channels, or try to conserve energy by monitoring your heating and air conditioning use. Every time your bills come in lower than your budget “pay” the whole bill anyway and save the difference until you reach your $1,000 goal. For more hacks, you can read how to invest indexed universal life insurance with these IUL investment tips.
Successful Speedy Saving
Not all of these tips will work for every person. Clearly, issues like health, childcare, and time all factor in to how many hours you can dedicate to work and earning money. However, for many people, making these temporary changes and quickly saving that $1,000 can be life-altering. However, it is incredibly important that you not only save this mini emergency fund as soon as possible, but also that you know what to do with it.
Ramsey suggests a separate bank account, though a separate savings account connected to a current bank account works just as well. His theory maintains that separating the money physically from the money you use to pay bills makes you less likely to touch it for non-emergencies. Of course, if you do need to draw from your fund, you also need a system in place that replenishes it. In this case, going back to the same five steps listed above is always an easy way to get your coffers full again. However, ultimately, as you get into a place of financial health, regular savings habits that are worked right into your budget (i.e. 10% of every paycheck) will make certain that you never fall into the no-savings hole again.