Most Americans are ill-prepared for emergencies. In fact, a whopping 66 million adult Americans have no money set aside as an emergency fund. Most people think they can’t afford to put money aside for an emergency but I have some tips to get help you get that emergency fund going:
The first thing you want to do is start with setting your end goal. That sounds backwards right? It is, but we need to establish a goal. Many financial experts say that you should put away 6-7 months worth of expenses in your emergency fund. But you are probably just starting out so let me suggest something else.
Let’s make two goals, the first is to put away three months of expenses. Once we have accomplished that goal, then the next goal is 6 months of expenses. This means that you will need to know your actual monthly expenses. Calculate what it takes for you and your family to survive for one month—this should include: housing, transportation, utilities, debt payments, meals, entertainment, groceries, personal care, gifts to charity, medical related expenses, etc.
Second, I suggest opening an account at a bank different then the one you currently use. Don’t request any checks or debit card for this account. You want to make it as difficult as possible to not be tempted to stick your hand in the “cookie jar”, unless it is really for an emergency.
Third, establish what an “emergency” is. In fact write it down. If you are married, you and your spouse should share this list. If you aren’t married, reveal the list to someone you can be accountable to.
Fourth, begin to save money diligently. I still use cash from time to time. What I do when I use cash and get loose change is I store it in a large container. Over time, the loose change adds up.
Fifth, be aware of what you are spending money on.. Reckless spending impacts your budget and therefore impacts your ability to contribute to your emergency fund.
Sixth, go on a thirty-day binge where you extinguish your vices. This could be very difficult. In fact, I am still working on getting to thirty days. Whatever your vice is that you spend money on, stop for thirty days. Instead of spending money on that vice, contribute that money to your emergency fund.
Seventh, make a commitment to save regularly so that you can get to your goal faster.
Remember, our first goal is to save three months of household expenses. Once we reach that mark, the next goal is to save six to seven months of household expenses.