Financial emergencies can come in the form of a job loss, significant medical expenses, home or auto repairs or something you’ve never dreamed of. The last thing you want to do is be forced to rely on credit cards or a loan which could simply compound the problem. Not having an emergency fund, when a financial crisis happens, will only pave the way to incurring more debt, thus keeping you further from your financial goals.
Currently, more than ½ of all adults don’t have a 3 month emergency fund, and only 1 in 4 say they have $2000.00 readily available when a crisis happens. One of our biggest ongoing problems is that we’re not prepared for adversity. This adds to stress, which could lead to a feeling of inadequacy, and even health issues.
According to a recent survey, having just $500 in the bank corresponded to a large difference in stress, quality of sleep, quality of health, and productivity. The study also shows that income level has nothing to do with this. In both low and moderate income households, the average income for households who have saved at least $500 were about the same as the income for those who had not.
If you currently don’t have an emergency fund or find it difficult to save money the key is to start small. If you set your immediate goals to be small and manageable you will have a better chance in reaching them. Start off by building a one month emergency fund. This will not only reduce stress, but it will give you the confidence and encouragement to keep building your emergency fund until you reach your goal.
Here are some make sense ways to start building an emergency account with three-to-six month’s worth of fixed expenses:
- Dedicate new income If you get a raise or take a second job, save the additional income. Keep up with credit card payments but don’t pay them off until you have at least $500 set aside for an emergency, and keep building from there.
- Dedicate “found” money This would be any unexpected cash from an inheritance, gift or bonus. It includes the monthly savings that come when you have made the final payment on a car or furniture or finally paid off a credit card.
- Use your tax refund It’s that time of year. Don’t waste this opportunity.
- Trim obvious expenses Your cell plan and your cable service can almost always be cut. Ditto for the dry cleaner and eating out. Track your savings and set it aside.
- Pay yourself first Write a check to yourself every month for $100, before you pay the bills. Better yet, make it an automatic debit from your checking account.
- Save your change Use cash for purchases, never handing over anything lower then a $1 bill. You’ll collect a lot of change, which if saved could amount to hundreds of dollars in a few months. If you’re feeling aggressive, never use less than a $5 bill and save your singles too.
- Sell something Yard sales typically don’t bring much. But everybody has something they could sell on eBay or Craigslist. For example, there is a vibrant market for used Blackberries and even the iPad now that the iPad2 has come out so quickly.
The key is getting started now, no matter how insignificant the savings may seem. Just like the Tortoise and Hare fable, “slow and steady wins the race”. Start today!