Emergency fund or savings is essential for your finances. There are at least two types of emergency funds you need to have. One is an emergency fund, which can be $1000, in a separate account from your account for your living expenses. Once you have paid off your debt aim for 6-12 months of living expenses (not income) as the amount to have in your emergency fund.
Why $1000 emergency fund? Most times an emergency doesn’t exceed $1000. So keeping this amount of money covers most but not all emergency repairs or expenditures. Yes there will be times an emergency will require more than $1000 but more than likely you don’t have anything for emergencies so $1000 is better than what you have now ($0.00)!
After you are debt free, you should a 6-12 months emergency. The range really depends on your preference. During the great recession, many people were unemployed or underemployed for more than 12 months. When you calculate the dollar amount to save, only include the cost for:
- vehicle expenditures (insurance, inspections, fuel, basic repairs, etc.).
So how do you save for your emergency fund?
- Reduce your expenses
- Cut off cable
- Take public transportation
- No clothing shopping unless necessary
- Do a No-Spend Month
- Do a Financial Fast
- Use coupons/ coupon apps
- Make more money
- Request a raise
- Work a part-time job
- A garage sale/ flea market booth
- Donate plasma
- Create a job – example: snow removal, lawn maintenance, childcare provider, elderly caregiver, janitorial services, photographer, web designer, copywriter
- Online surveys
- Mystery shopping
Remember you don’t have to make these cuts and/or work these jobs for a long period of time. They are a short term method to achieve the goal of funding your emergency fund. You got this! Go start saving money for your emergencies.