How to Start an Emergency FundSubmitted by Helping Families Build A Financial Legacy on February 24th, 2017
How will you pay for unexpected bump in the road like an auto repair or a trip to the hospital? According to a recent survey by Bankrate.com, for most Americans an unplanned expense for as little as $500 would disrupt their budget and result in charges on their credit card.
To keep from going into additional debt, everyone should have a financial buffer to handle unexpected emergencies. Although financial planners recommend keeping an emergency fund in cash equal to 3 – 6 months of living expenses, a stash of $1,000 can keep you afloat even when mayhem strikes and will keep you from using credit cards.
So how do you start? Achieving a fully funded emergency fund will take time, discipline and a plan. Here’s a few tips on how to get started:
1) Determine How Much You Need
Start with a short-term goal of $1,000 with a long-term goal of 3-6 months of living expenses. Determine your monthly living expenses by examining your budget and keeping track of all your variable spending for the month using the form available here. (Emergency Fund Worksheet) Online solutions, like Mint.com, can also be used to track spending by automatically downloading and categorizing your expenses.
2) Open A Separate Account
Keep emergency funds separate from your checking account, in cash, and not accessible for impulse purchases. I recommend clients keep the debit card for their emergency fund separate so they must give more thought before spending.
3) Define “Emergency” Upfront
What’s an Emergency? Generally, it’s something unplanned that impacts health, your ability to earn money or safety. These include expenses like medical emergencies, car repairs, or home repairs. This isn’t a savings account for a new home or a family vacation—keep those separate. Decide ahead of time when you’ll spend money out of the account and put it in writing.
4) How to Fund Your Plan
Now that you have everything in place, it’s time to fund the account. Here are a few quick ways to get started:
- Yard Sale
Most people have items lying around they aren’t using—maybe even a storage shed! Clean out your house, hold a garage sale, drop off items at a consignment store or list items online. This will be a fast way to get your account started.
- Save Your Change
Have you emptied your piggy bank recently? I keep a piggy bank on top of our washing machine for loose change that’s left in pockets. Once it’s full, I take it to a coin changer and typically receive around $100. That’s not a bad start!
- Find One Time Job Opportunities
Can you babysit or do you know someone who needs help with yard work? Look for one time job opportunities that don’t require an investment and fit into your schedule.
Once you’ve funded your emergency account, you’ll have the peace of mind knowing that an unexpected expense won’t disrupt your budget.
Want to learn more about your savings options? Contact me at email@example.com or 813-252-0799 to schedule a complimentary 20-minute discovery call.
Lori Nadglowski, CFP®, MBA has a passion for helping families and those in need. After two decades of experience in the financial services industry she took that love and founded Laurel Wealth Management, LLC, a firm dedicated to building financial legacies.