The Emergency Fund: Why You Need It, and How to Get It
Emergency—that word gets your attention, doesn’t it?
Emergencies are like rush-hour traffic: not fun to think about, but they’re still a part of life. The problem is not enough people prepare for them. A Bankrate survey conducted in June found only 22% of people have six months’ worth of expenses saved in an emergency fund, and 29% have no rainy-day fund at all. Think that’s eye-popping? Then consider that 53% of responders who earn less than $30,000 a year haven’t saved a dime for emergencies!
If you don’t have an emergency fund, you’re obviously not alone. But think about how awesome it will be when you can join those who do have emergency savings. Those people don’t hit the financial panic button when they face a busted water heater, car trouble or even a hospital visit. They can cover their bills because they’ve saved for a rainy day. Are you ready to join that group of people?
How Big Should My Emergency Fund Be?
There are plenty of reasons why you should save money for unexpected events, but how much do you need? Start by saving $1,000 to cover small emergencies before you pay off your consumer debt. Then, once you’ve shoved your debt out the door, pile up enough cash to cover three to six months of household expenses.
Here are some of the ways that savings can help you:
1. It pays for large items that break. If your refrigerator quits working or you have car trouble, you can immediately pay for a repair or replacement.
2. It covers you if you lose your job. We don’t like to think about someone losing their job, but we do have to consider it a possibility. If you have savings, you can pay your bills while you search for work.
3. You don’t have to break your savings momentum****. It’s discouraging to save for a big purchase you want to make only to use that money to cover an unexpected emergency. A rainy-day fund allows you to pay for the visit from Murphy’s Law (you know—if something can go wrong, it will) and continue saving toward your goal.
How Can I Get My Fund Started?
You may think saving this money is difficult. But once you’re on a budget, it isn’t so tough. Here are some practical tips to get your rainy-day fund in place:
1. Stop using debt. How does this help you save money? Because when you don’t use a credit card or have a car payment, you don’t pay interest, which is money that’s just tossed away. Get out of debt and make that money work for you.
2. Sell something****. If you own a big item you never use such as a treadmill or laptop computer, sell it. That quick influx of cash gives a jolt to your savings.
3. Cut unnecessary expenses****. Do you have a health club membership you’ve used twice this year? A premium satellite package with 200 channels you’ve never heard of? When you get rid of those services, you free up a chunk of money to go into savings each month.
4. Work an extra job. This requires a lot of time and energy, but the results are worth it. Deliver pizzas or clean houses for a few months and put all your paychecks into savings. You’ll sleep a lot better afterward knowing Murphy will have a hard time getting to you.
If you’re a little nervous because you have no savings, don’t worry. No one is born with their emergency fund in place, so just start saving from where you are. Look at your budget to see how much you can sock away this month. Just starting the saving process will instantly make you feel better.
If Murphy does stop by, you can shoo him out the door with cash or debit card in hand and say to yourself, What’s the big emergency?
Start budgeting for your emergency fund with a free EveryDollar account. Guard yourself from emergencies by setting up your first budget in less than 10 minutes.