Every personal finance guru will tell you that you must have an emergency fund. This is step one in almost all financial and get-out-of-debt plans.
According to a survey released by Bankrate.com, roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings.
So how does one break the “paycheck to paycheck” cycle? The only way is to build up an emergency fund. And according to Dave Ramsey you should start with a $1,000 emergency fund.
Emergency funds are like insurance. They insure you against potential problems. It is your safety net to cover you for unexpected expenses. And they ALWAYS occur. We learned this the hard way. So you must be ready.
The big question is where do you get the money for your emergency fund if you are living paycheck to paycheck? Keep reading for ideas on building your emergency fund!
7 Quick Ways To Build Your Emergency Fund
1. Sell Your Stuff. Convert unused items in your home to cash by selling them at a yard sale, on eBay, Craigslist or in Facebook groups. Look for toys, clothes, tools, furniture, decorations, dishes, books and lots of other items that you may have that you are no longer using.
When we were trying to build up our emergency fund we had a yard sale one Saturday morning and made $430! This was from stuff we had stored in our attic, basement, garage and items in the house we no longer used. We had no idea we could get that much money for items we weren’t even using anymore that were just taking up space collecting dust.
2. Save Your Tax Refund. 75% of taxpayers received a refund last year. If that applies to you then saving all or part of your tax refund is a great way to jump-start your emergency fund. Use the remaining amount to pay down your debt.
3. Make It Automatic. Set up a weekly or monthly transfer from your checking account to your savings account. This way you don’t have to remember to do it yourself and you are automatically building your emergency fund. Get started even if you can only afford $25 a month. You can always increase the amount as you can afford it.
4. Go On A Spending Freeze. This was a tough one for me. But until you get your emergency fund built up it’s important to stop all non-essential spending. Those little extras add up and that money could be added to your emergency fund.
We did this for about 4 months until we had $1,000 in our account. We stopped eating out, shopping (except for groceries) and watched movies at home instead of the movie theater. Just remember that cutting discretionary spending is a short-term sacrifice that will help secure your financial future. It’s not forever. That’s what I kept tell myself and it actually wasn’t a hard as I thought it would be.
5. Save Your Bonus Paychecks. If you receive a paycheck every other week then you’ll receive 26 paychecks per year. That means in two of the 12 months, you will get a third paycheck. Budget all or part of the extra checks to be put toward your emergency fund.
6. Use Your Pay Raise. If you were lucky enough to get a pay raise, instead of living off the extra income use it to build up your emergency fund. Once you have your emergency fund fully funded you can then apply the extra income to your retirement account.
7. Boost Your Income And Reduce Expenses. Increasing your cash flow while cutting back on expenses will make a huge difference in finding extra cash to stash in your emergency fund. Look for ways to bring in extra income such as getting a side hustle part-time. Cut expenses by eating at home, meal planning, shopping with a list and sticking to it and cutting out premium services and memberships.
Remember you can start modestly and gradually build up your emergency fund. But don’t stop saving! Keep the momentum going.
Once we managed to save $1,000 in our emergency fund we didn’t stop there. We kept the automatic transfer from checking to savings and increased the amount anytime we received a raise. This allowed us to keep 6 months of living expenses in savings to cushion us against a job loss or other unforeseen circumstances.
Saving for an emergency can be difficult especially when you are over-burdened by debt. However, having even the smallest savings account can be a huge lifesaver when your financial situation takes a turn for the worse unexpectedly.
What steps are you taking to build your emergency fund?