Of all the things you can live without, don’t make an emergency fund one of them! It amazes me the amount of people who don’t have even $500 set aside for an unexpected event.
What would you do if your car died and you had to pay $600 to have it fixed? I would be annoyed and frustrated for a good part of the day because I hate surprises, especially those kinds of surprises. Then I would transfer the money out of my online savings account into my checking account and get on with my life. Things happen, you just don’t always know when. Life is unpredictable. You can’t plan for everything, which drives me crazy because I am such a planner, but having an emergency fund is the next best thing. I couldn’t sleep at night if I didn’t have an account specifically for emergencies.
Now before you let your mind fill up with excuses why you can’t afford to save, start thinking of the reasons why you can’t afford not to. How will you handle the unexpected expenses? Will you add to your credit card debt? Will you sell something for half its value to get quick money? That is no way to live.
1. Open a savings account. It doesn’t matter whether it’s at your local bank or an online account. I prefer to keep the bulk of my money in an online account linked to my local checking account. I enjoy the higher interest rates (almost 10 times higher) and it’s easy to manage from home. Even if you open it with just $25, that’s a start. Getting started is often the hardest part.
2. Set up an automatic weekly or monthly deposit. You need to make saving a priority over all of the other things you spend your money on. Maybe it’s your morning coffee run or the extra snacks you buy at the grocery store. It all adds up.
3. Only withdraw in the case of an actual emergency. Here’s an example of what constitutes an emergency. If your refrigerator dies, that would qualify as an emergency. If you really, really want to go see Dierks Bentley and all of your friends are begging you to go, that sadly doesn’t qualify as an emergency. This really takes some serious tough love and adulting!
4. Challenge yourself to contribute more. Maybe you found $15 a week to automatically deposit, but want to see the savings grow quicker. Bump it up to $25 a week or more.
5. Set a goal of saving at least 6 months worth of living expenses. That probably seems unattainable, but it’s not. Instead of using your tax refund to update your tv or go on vacation, use it to build up your emergency fund. Maybe you got a bonus at work, use some or all to boost your savings.
When you have a safety net in place, you won’t find yourself taking extreme measures to get out of trouble. An emergency fund is the best way to stay on budget. Having a safety net means you won’t have to throw your budget off because of a bump in the road. You’ll sleep a lot better too.