Having a stash of money for emergencies is one of the most important steps on the road to financial success. An emergency fund reduces stress and can help you avoid financial disaster when unexpected expenses pop up. With emergency funds, you avoid accruing debt when you have surprise expenses that don’t fit into your monthly budget. Need more info on what is and isn’t an emergency? Check out Pete’s video on the importance of Emergency Savings.
How much is enough? We recommend 3 months of your monthly expenses. If your monthly budget is $2,800 in spending, then you need $7,200 in your emergency stash. That’s quite a bit of money to set aside so we’ll break it up into more manageable goals: $1,000, 1 month of expenses, and finally, 3 months of expenses.
How do I save that much money? If you have other debt obligations or if you don’t feel like there’s room in your budget, you’ll have to prioritize emergency savings above some other items for a period of time. For example, if you’re paying extra on your mortgage, you can go back to regular payments and divert those extra dollars to your emergency fund until you reach your goal.
Here are some of my money saving tips that might help you find elusive cash:
- Try a “no spending” week
- Or maybe “no spending” days like Monday, Wednesday, Friday.
- Whatever your dining out budget is, reduce it by half
- No new clothes for a month
- Cancel cable or streaming services
- Change up your menu planning to reduce grocery spending by 20%
If you feel like your budget is already squeezed and can’t further reduce, here are some options to find additional income:
- Get a 2nd job and put everything you make into your emergency savings. Set a goal, reach the goal, and voila! ..that’s the end of your 2nd job.
- Sell your material possessions. You can sell items you have laying around like clothing, jewelry, books, home decor, furniture, tools, and electronics. Selling your things will help you get a jump start on savings. Try ebay, ThreadUp, Craigslist, Facebook Marketplace, Let Go, or any other online marketplace.
- Have a garage sale and really clean out your storage, closets, toys, and garage items. It’s not unusual to make $400 with a good garage sale.
- Follow Pete the Planner’s Starter Emergency fund exercise to save $465 in a month by putting aside $1 on day 1, $2 on day 2, $3 on day 3 and so on. In 30 days, you’ll have a cool $465 in your emergency fund.
- Any bonuses, tax refunds, or monetary gifts make great additions to your emergency savings.
Where do I put this money? It’s extremely important this money is safe and liquid. Safe from you and safe from risk! That means it shouldn’t be in your checking account nor an investment account. Some safe places would be an interest bearing separate savings account, a money market or any other account that you won’t see unless you go looking for it. You don’t want to be tempted to spend this money unless necessary.
It will most likely take a little extra effort to build up your emergency savings but with just a few small goals and some creative thinking, you’ll have 3 months of expenses stashed before you know it. Most importantly, you’ll be happy you did it when, not if, an emergency hits you.
Gayle Evezich, AFC® is a Senior Financial Concierge at Your Money Line and personal finance author. Gayle’s greatest joy is to help others find comfort with their money through financial empowerment. When not working or donating her services, you can find Gayle hiking, cooking creative vegan food, traveling or reading scandalous murder mysteries!