Have you ever found yourself short on cash?
It may have been when the electric bill comes in. Or when you’re standing with a cart full of food in the grocery store. Or (hopefully not) after you finished eating your yummy meal on a blind date, and you go to pay and there’s nothing in your wallet (talk about embarrassing!).
Listen, I get it! Money can be a hard thing to manage. But you know what helps-besides a big wad of cash?
Being prepared.
Creating a system to cushion moments like these, and is incredibly helpful. If you have a system already in place, you can find wiggle room in your spending plan to cover expenses like the ones listed above (which are likely not really emergencies). Another important tool in being prepared is to have an emergency savings set aside for actual emergencies.
What is an emergency savings?
Emergency savings is money you set aside to help in…well, in the case of an emergency. It can help you if you unexpectedly lose a job, if you have medical problems, it prevents setbacks when paying off debt, and helps your stress and overall well being.
What constitutes an emergency (aka when can I spend it)?
The point of this money is to not spend it unless it is absolutely necessary. Don’t use it if you really want that pair of shoes. Don’t use it if you are short on your internet bill (may seem necessary, but isn’t). Don’t use it if you are wanting a downpayment for a house. Only life or death. Don’t view it as money to spend. It is only there to be your very last line of defense.
Food, shelter, water. That’s it. And bare minimum for each, don’t use food as an excuse to go out to eat. 😉 See if you can have friends or family pitch in to help you. If you would be too embarrassed to ask for their help, chances are it’s not a true emergency. But trust me, when it is an emergency, you’ll be glad you have it.
How much should I have?
Emergency savings should be built up over time. Don’t freak out if you see the final step and you’re not there yet. Start with step one, and build up to the other steps later.
Side note: This money needs to be separate from your regular pool of cash.
$500
$1,000
One month of living expenses (or your total expenses on the Cash flow Statement)
Three months of living expenses (total expenses on the Cash flow Statement X3)
Extra as you see fit
When should I have each step completed?
It depends on your financial situation, including your income and expenses. You may already have some of the steps done, or you may not be even close to step number one. The important thing is to set up a plan of how much you are going to save each month to reach your goal. If you need help determining this timeline, I can coach you through it step by step.
Do everything you can to get through steps 1-2 as quickly as possible. Do a yard sale, side hustle, pick up some part time or temp work. Get that money stowed away! This will give you peace of mind, and put you ahead of 60% of Americans who can’t afford a $1,000 emergency.
Where should I put my emergency money?
Cash:
It’s a good idea to keep some in cash, and some in a bank account. I suggest having about $200-$500 in cash depending on your family size, and if you live in an area prone to natural disasters (which comes in really handy).
Store cash in a safe place, have some in ones, fives, tens, and twenties. I keep about $20 in each car, and keep the rest in a safe place. You can also store some in an emergency kit if you have one.
Account:
Put it in a seperate account, you don’t regularly access! If you haven’t already, open an entirely new account that you don’t use for anything else. I cannot stress this enough! This is the key to an emergency savings. Out of sight, out of mind.
Some like to put the money into an account which takes several days to transfer out so you have to really justify taking it out. This can be a good idea, especially if you know you are prone to spending.
If you are using YNAB (or You Need a Budget) like I do, don’t link your emergency savings to your budget. This way you don’t even realize it’s there until you really need it!
How can I start one?
Action is just as important as planning. Here are some steps to ensure you actually start an emergency fund instead of just thinking about it:
Open a separate account that is used only for your emergency fund.
This could just be a checking or savings account. If you really want to look into your options though, Financial Panther wrote a great article on this.
Determine which step you are on (see “How much should I have?” above) by seeing if you have extra money sitting around. If you don’t, no worries!
Make a goal to accomplish the next step in the sequence. Set a predetermined amount you will save every month to get there, and set it on autopilot.
Dump any extra money into your emergency savings to speed up your timeline. Sell some stuff, donate plasma, deliver pizza, whatever makes you happy.
Save up to your goal!
Do a jiggity jig, because you did it!
Have more questions?
If you need more help with an emergency fund, feel free to ask questions below, or enroll in my online course.
This course will help you with more than just emergency savings, it will help you spend on what matters most, without sacrificing long term goals. You can stop living paycheck to paycheck, and not feel like money is constantly slipping through the cracks. There’s lots of other great benefits of joining, so what are you waiting for?
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