In a previous article, I explained why each of us needs an emergency fund. This article is going give you some ways of how to get it started and reach your emergency fund goal.
If you are just starting your emergency fund and are still in debt, a $500 beginner emergency fund is the goal if your total household income is under $20,000 a year. If your total household income is over $20,000 a year, a $1,000 beginner emergency fund is the goal. Once you are out of debt, the next goal will be to have a fully funded emergency fund which is 3 to 6 months of expenses.
Here are some ideas to get your emergency fund started:
Budget for Saving – When you create your monthly budget, have a savings category and put money in your emergency fund. When you’ve reached your emergency fund amount then allocate that extra money towards debt.
Adjust your withholding – If you get a tax refund, you are having too much in taxes withheld from your paycheck. Adjust your withholding amount so you have more income in each paycheck. For example, if you get a $1,000 tax refund that is $83 a month in income you could have in your pocket instead of giving the government an interest free loan! This is a painless way to get your emergency fund started.
Start Saving – If you are not used to budgeting and saving, start with $10 or $20 a week that’s automatically deposited into a savings account. Even a small amount that you set aside each week will grow over time for your beginner emergency fund amount.
Sell Stuff – Look around your home for items you no longer use or can live without and sell them on eBay, Craigslist, have a garage sale, etc… The amount you get for selling your stuff can go directly to your beginner emergency fund. The security of having an emergency fund will help keep you on track.
Stop Splurging – If you are spending $4 a day on that latte, that’s $20 a week! Bring your lunch to work instead of eating out all the time. $10 a day on lunch is $200 a month! Saving on each of these will help build up your emergency fund. Finding less expensive alternatives will get your savings higher quicker.
Raises – When you get a raise, put the difference between your old take-home pay amount and your new take-home pay amount in your emergency fund. You didn’t have that money a month ago, so you won’t miss something you weren’t used to having and it will make a difference in your future security.
Unexpected Income – When you get a rebate or refund, contribute that amount to your emergency fund. Putting at least some of the rebate/refund will help you reach your emergency fund goal sooner.
Your emergency fund should be somewhat easy to get your hands on, but not too easy. If it’s too easy, you may have the urge to spend it on items that aren’t emergencies. A savings account that is separate from your checking account is a good place to have your emergency fund. This is not an investment account. It’s supposed to be there to pay for emergencies.