Emergencies can and will happen. No, they will never be convenient. They will rarely be anticipated. And the last thing you should be worried about in case of emergency is money.
That’s why you need an emergency fund today.
What are emergency funds?
Emergency funds are savings account set aside for a rainy day. They are only to be used for true emergencies, such as job loss, medical expenses, or a major car repair.
Think of all the times you had a large surprise expense. How did you pay for it? Did it ruin your budget? Did you have to get by “living” on credit for awhile? Or ask someone for money?
Emergency funds are so important because you cannot get your financial life in order without one. If you’re in the middle of paying off credit card debt, you still need an emergency fund. Why? Because otherwise, more often than not, that emergency will be put on a credit card if you don’t have an emergency fund, thus undoing all the debt repayment progress you have made so far.
Be prepared. If you’re a single woman, you owe it to yourself to have an emergency fund. If you are a single male, you owe it to yourself. If you are a family with children, you owe it to yourself and to the children.
How much should I save in your emergency fund?
How much you should save in your emergency fund varies. Financial expert Dave Ramsey recommends that the first step you should (and have to) take to improve your finances is to create a $1,000 emergency fund.
This is exactly the first thing I did when I started getting serious about my finances, and have since focused on growing my emergency fund to a full 6 months of living expenses.
Once you have that first $1,000, you can then focus on paying off debt. It does you no good to pay off debt if you have no security to pay your bills in the event that an emergency happens.
Ultimately in the long-term, it’s a good idea to aim for 3-6 months of living expenses in your emergency fund. My husband and I just accomplished this, and it provides us with so much security. Now, we don’t have to worry about emergencies. If we have something come up, we simply pay it.
How to save your first $1,000
$1,000 might sound like a lot to you at first, but it is easier than it sounds.
Set a goal of when you want to have your first $1,000 saved by. Then divide that by how many months and you will see how much you need to save each month.
I have this amount automatically deducted from my paycheck and added to my emergency fund so I don’t even have to see it or think about it. And then I certainly am not tempted to spend it! I can’t recommend this method enough.
If money is tight, you’ll have to commit to budgeting like crazy. Just remember that your financial security is more important than buying lunch out or new clothing. You can always find a little more wiggle room in your budget, no matter who you are.
Other tips are to sell everything you can on OfferUp and Craigslist. You’d be surprised how quickly you can earn $1,000 by selling things you no longer need. Lastly, if you are expecting a tax return, that whole sum could be added to your emergency fund and you’re done.