Every credible personal finance expert recommends having an emergency fund of between three and six months of your household expenses saved to cover potential income disruptions. While you might be tempted to file that suggestion under the heading of things easier said than done, amassing such a fund is entirely doable, if you follow a prescribed path.
Here’s how to build an emergency fund quickly.
Start With a Cushion
Set an amount below which you will not let your checking account balance drop between pay periods. In other words, rather than spending all of your money each month, give yourself a goal of having a cushion of a set dollar amount left in your account just prior to each payday. This will serve as a de facto emergency fund in that it will prevent costly overdrafts of your checking account. Keep building this up until it totals two weeks of your pay.
Begin the Formal Fund
Once you’ve become used to holding back in that fashion, shift the two-week amount to a separate savings account, to which you’ll contribute the cushion amount each time you get paid. Get in the habit of moving this money before you pay any bills or do any shopping. You’ll often see this tactic referred to as paying yourself first. Once the fund hits the three-month mark, taper your contributions off a bit so you can shift some of that cash to the next step.
Eliminate High Interest Debt
If you’re like the average American, you have approximately four credit cards or more and an outstanding balance of $6,000+. Your next step should be to pay off this debt. Depending upon the nature of your situation, you might opt for some form of credit card debt relief such as working with a credit counselor or engaging a debt settlement firm. Your choices here will vary according to the severity of your circumstances.
Reduce Your Expenses
With automatic transfers, it’s all too easy for your checking account to be subjected to parasitic draining that adds up over time. Subscriptions to streaming services you seldom use, that wine club you joined with which you never bother, oversized cable TV packages all of these can siphon away portions of your income that could be going toward your emergency fund. These are just a few of the ways you can cut your overhead if you put your mind to the task.
Increase Your Income
This could be as simple as finally cracking for that long overdue raise, coming up with something you can do on the side to bring in additional cash, selling off unused items and the like. Every dollar earned from these endeavors should be funneled directly into your emergency fund until it reaches capacity.
You can subsequently use those dollars to eliminate debt and/or save for the purchase of a big-ticket item so you won’t have to charge it. You can also use it for other purposes such as shoring up your retirement fund.
The one thing in life that never changes is the fact that things do change. Even if things are stable right now, you can be sure instability will arrive at some point. In other words, while unexpected expenses might seem like a surprise when they appear, you should be anticipating them all the time.
Understanding how to build an emergency fund quickly and following through on the knowledge can save you from taking on debt when these things happen. Doing so will make it easier for you to keep your finances on track toward achieving your long-term financial goals.
I’m a 20-something stay-at-home mother and wife. I have an amazing husband, a beautiful daughter, two loving dogs, and a lazy cat. I wouldn’t change my life for anything! I love to read, listen to music, cook and blog!
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