7 Easy Steps to Build an Emergency Fund
Are you prepared for an emergency? If not, you need to start building an emergency fund today. This is money that you save specifically for emergencies. When something unexpected comes up and you need money fast, your emergency fund will be there to help you out.
In this blog post, we will teach you how to build an emergency fund quickly and easily. Follow these 7 simple steps and you will be on your way to financial security!
Start Small and Save Your First $1,000
One of the best ways to start building your emergency fund is to set a small goal and work your way up. Start by saving your first $1,000. This may seem like a daunting task, but it is doable if you are disciplined and stay focused. Once you have saved up your first $1000, you can start thinking about how to grow your emergency fund even more.
Put away $20, $50 or $100 a month if you need to and get to that first $1,000 saved. Cut back on as much as possible to get to this goal, and you'll be surprised at how quickly you can get to the first $1,000. This is not a race, it's a marathon; having a smaller goal that is achievable will help you stay focused and allow you to hit that goal.
Set Up Recurring Transfers
The next thing you want to do to continue to build your emergency fund is to use recurring automatic transfers. This is an easy way to make sure that you are consistently putting money away for emergencies. All you need to do is set up a recurring transfer from your checking account to your savings or money market account.
This can be done through your bank or credit union's website, app, or by calling customer service. Choose a date each month, week, or pay period that works best for you and make sure that the money is transferred automatically. This will help you stay on track and make it easier to save for emergencies.
Cut Back on Unnecessary Expenses
It is imperative for you to cut back on unnecessary expenses in your budget in order to start building up your emergency fund. This may seem like a daunting task, but if you are disciplined and stay focused you can accomplish this. Cutting back on unnecessary expenses can help you to free up more money that you can save for your emergency fund.
So how do you go about cutting back on expenses? Here are a few tips:
- Cancel subscriptions that you don't use or need, such as cable TV or magazines
- Pack your lunch instead of eating out every day
- Take public transportation instead of driving everywhere
- Shop at thrift stores or online consignment shops for clothing and other items
Sell Unwanted or Unnecessary Items
Consider selling unwanted or unnecessary items you have in your home that can give you cash to fill your emergency fund. Whether you're trying to get rid of old clothes, unused electronics, or anything else, there are plenty of ways for people to turn their things into cash. Let's take a look at how you can sell your unwanted items and contribute this money towards building an emergency fund!
Online: One of the easiest ways to sell your stuff online is through eBay, NextDoor, Facebook Marketplace, or Craigslist. All that's required from you is a photo and description of what it is that you're selling. If it's clothing, include the size and any other pertinent details like color and condition.
Garage Sales: Another great way for people to turn their things into cash is by holding garage sales. You can advertise them on social media or flyers around town (with permission). This will allow neighbors, friends, and family to come out and shop at your sale! And if you tell them you're doing it to help contribute to your emergency fund, they may be more willing to come out and take a look.
Put Your Tax Refund to Good Use
When it comes to tax refunds, many people tend to fall into one of two categories: those who spend it all and those who save it. If you're looking for a way to quickly build your emergency fund, then using your tax refund to do so is a great option.
When you file your taxes and ask for direct deposit for your refund, make sure you deposit the money directly into your savings or money market account instead of your checking. This will help you to avoid spending the money frivolously and will ensure that it is used for adding to your Emergency Fund.
Get a Temporary Part-Time Job or Side Gig
If you're looking for a way to make extra money and want to contribute it to your emergency fund, getting a temporary part-time job or a side gig can be a great option. This will allow you to make some extra cash without having to commit to something long-term.
There are plenty of ways to find part-time jobs or side gigs, all you have to do is look! Here are a few ideas:
Food Delivery Driver: With various food delivery services such as DoorDash, UberEats, and GrubHub, you can become a food delivery driver and make extra money in your free time.
Amazon Flex: With Amazon Flex, you can make additional money based on a set block of hours that you get paid to deliver Amazon boxes and packages. Most blocks pay anywhere from $35 to over $100, depending on the amount of time and number of packages that need to be delivered. And they direct deposit twice a week, which can be deposited directly into your savings account.
Uber/Lyft Driver: Becoming an Uber or Lyft driver gives you the ability to use your free time to make extra money in one of the simplest and most flexible way possible - by driving people from point A to point B. Though there are quite a few drivers doing this, with the Portland area growing there will be a continued need for more drivers willing to take people for a decent rate. And with direct deposit, you can take that extra cash and put it right into your emergency fund account.
TaskRabbit: With TaskRabbit, you can sign up to do things like house cleaning, dog walking, or furniture assembly. All you need is an internet connection and the ability to work on your own schedule. TaskRabbit has quite a lot of different one-off job opportunities that can give you a little extra cash to contribute to your emergency fund.
Save Up 3 to 6 Months Worth of Expenses
Now that you have several ways to grow your emergency fund, exactly how much should you save? And what do you do when you have enough saved? How do you use the fund?
You need to save up 3 to 6 months' worth of expenses in your emergency fund. This will help to cover basic expenses such as rent/mortgage, utilities, food, and transportation for a period of time if you lose your job or run into some other financial difficulty.
So how do you know what your monthly expenses are?
The best way to determine this is by looking at all of your accounts (bank statements) over the last 12 months and tallying up all that was spent in each category: housing costs (rent/mortgage), food (grocery store), gas station purchases, restaurant spending, etc. Once you have combined each category's total spend over a year's worth of statements, then divide it by 12 - this number represents an average month's expense in each category.
I know this may seem like a lot more work than just adding your last month's expenses, but not all months can be equal; take that extra time so you have a more accurate idea of what you spend each month on necessary things. Then multiply that number by either 3 or 6 months to determine what you need.
If you have a dual or multi-income household, you can likely get by with 3 to 4 months worth of expenses saved, as it's unlikely all of the income will be lost at once. However, if you have income that is commission-based, or you're self-employed, it is wise to save the full 6 months in case the industry you're in has a downturn. It's better to have more saved than less, so use your best judgment when determining this.
Remember that the purpose of an emergency fund is to cover your basic expenses in case of an unexpected event, so don't use it for things like a new TV, new furniture, or a vacation. Only use the money for things that are absolutely necessary, like rent, food, and utilities.
You can also use it for things that unexpectedly break, such as a dishwasher, water heater, or air conditioner. You can also use it for things like water leaks, roof replacement/repair, or other structural issues that may not be covered by insurance or warranties.
Once you have your 3 to 6 months emergency fund saved, you can have peace of mind that no matter what financially comes your way, you can weather the storm and have the money to take care of your family and your home.
Just remember that when you use the money in the emergency fund, make sure you replenish what you've used!