We all talk about emergency funds but do we know how to build an emergency even when you are broke. In this post I want to go through everything about emergency funds and how you can build up one.
There is one thing that is sure as your birth and that is the fact that at certain points in your life you will have to deal with emergencies. Those emergencies can range from sicknesses, death, loss of jobs, etc.
It is therefore a no brainer for someone to create an emergency fund towards those issues. Otherwise, you will look foolish in the eyes of friends and family when you are panicking and troubling them for assistance.
As the saying goes he who fails to prepare, prepares to fail.
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Table of Contents
Emergency Fund Amount: How Much Is Enough
Have you ever wondered as to what is the minimum amount you can have in your emergency fund? Unfortunately, there is one size fits all and most experts have all sorts of figures out there.
Most experts will tell you that an emergency fund should have at least three to six months of your fixed expenses or basic expenses.
By fixed expenses, I am talking about expenses you can’t do without. These are expenses that what came may you will still incur. These include food, water, electricity bills, child care, rent, etc.
If you think this is too much, look at the recent COVID-19 epidemic emergency which has led to millions losing their jobs in a few weeks. You now have millions relying on the federal government to protect them from eviction in their houses.
It, therefore, makes sense to prepare for all these expenses well in advance. Unfortunately, most of us are in such dire straits financially that we have not savings worth talking about.
We live every day relying on credit cards even for living expenses. Something we need to do something about. We need to find ways to get rid of these credit card debts.
So when you are thinking of the amount to keep in your emergency fund do not think of just a sum of money like $5,000. Instead, look at what you will need to sustain you for three to six months without serious problems.
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How To Build An Emergency Fund Even When Broke
Below are some ways you can follow to build an emergency fund even when you are broke. I hope that by the end of the post you will put these tips into action and therefore be better prepared.
You owe it to yourself or to your children to prepare. In that way, you will avoid the embarrassment of having to ask for food assistance from food banks or friends.
1. Cut Down on Some Discretionary Expenses
If you are struggling to save then one of the ways to find spare money for emergencies would be to cut down on some discretionary expenses.
Discretionary expenses are those expenses you can still survive without. These are what are described as wants and not needs. I have a post that discusses the differences between needs and wants. I encourage you to read it.
But in a nutshell discretionary expenses include entertainment, vacation expenses, etc. You can afford to miss your Caribbean vacation this year and be okay or you can replace it with what is now called staycation.
I have a friend who spends thousands of dollars every year on vacation expenses. Unfortunately, he charges all that to his credit cards. Definitely not a wise way to manage your finances.
He would do well to avoid all that credit card debt and instead use the amount that he pays these credit card companies to increase his emergency fund.
Another expense that can be easily reduced is cable tv. Some of us spend at least a $100 a month for a service we only use one or two hours a day.
We are provided with channels, most of which we rarely watch. On my bouquet, I have at least 100 channels and I only watch maybe 10 channels a month.
This is definitely $100 that should be avoided and saved in our emergency fund.
Other expenses include gym memberships that we rarely use. And even if we use them, there are other better ways of exercising other than using the gym.
You can for example exercise by walking through your neighborhood. I like going through woodland near us and study plants and flowers.
Sometimes I walk with my daughter for a mile or two and as a result, I have come to know our area better than I did before.
If you are still stuck you can look around your house. For example, if you have the biggest TV screen possible you consider selling it and buying a smaller one. Or if you bought it on credit you can settle the balance and go for a smaller one.
The truth is there are so many discretionary expenses that we can get rid of and find spare cash for your emergency fund.
2. Clear Your Debts
Another way that can help you get money for your emergency fund is to clear your debts. The sooner you clear your debts the sooner you will have free cash that you can use to fund your emergency fund.
And another reason this will help you is the discipline you will acquire by clearing your debts. It is that discipline that will help you as you work to build your emergency fund.
The huge debts that we owe are strangling us financially. There are so many things that we cannot do because all our resources are now going to service these debts.
It is only sensible therefore to try to clear these debts as soon as possible so that we can breathe easily again financially.
One religious leader has said that we should treat debt as leprosy was treated in the olden times. In the olden days, people run away from those suffering from leprosy.
In the same way, we too should run away from debts. Only borrow if there is no other way out.
There is no point in buying a new tv on credit and therefore have to bear finance charges. There is nothing like zero interest. The interest is bundled together with the so-called zero interest credit.
If you want to buy a new television, just save enough money and pay it by cash.
Some of us are in debt because we want to be like our friends. It is high time we took our eyes off other people’s property and only buy things because we need them.
3. Find New Ways to Make Money
It is very easy to look at our jobs as the only way you can make money. If you really analyzed this, you will see that the only people who benefit are the owners of our companies.
We toil for them for a salary and later in life struggle to survive in our retirement. Whereas the owners of the firms we work for are getting richer and richer.
At the company I left a few months ago I used to get an increment of between 1-3 percent every year. While I was getting this negligible raise in my salary the stock price was rising at least 10% every year.
This and many other reasons is the reason why we all need to find other ways to make more money.
You can for example start blogging and make extra cash through ads and products you can sell. I have a post that can help you in that regard like How To Start A WordPress Blog on Bluehost.
There are people out there who make a living through blogging. I know it is possible as I have been blogging for 15 years now.
While I have not made six-figure sums, I have made enough to know the potential of what I can accomplish if I put more effort.
I should point out this is not a get rich quick fad. It takes time to be able to make serious money blogging. But I know that if you persist you will be able to reach your goal in a year or two. A goal where you are making enough to match your salary.
If you are interested in learning from those who have managed to create blog properties that are able to earn $5-10,000 a month then I urge you to enroll with the Income School.
If you cannot do blogging there are other ways to make extra cash. These include learning how to make money at the flea market and taking action by starting selling things at the flea market.
4. Create Automatic Transfers to An Emergency Fund Savings Account
It is one thing to cut expenses and excess cash but it is another to avoid the temptation to dip into those savings. Therefore one way you can avoid this is to create separate savings account for emergencies.
Some banks allow you to name your savings account the way you want. In this case, you can name it the Emergency Fund Savings Account. In this way, you won’t mistake for any other account.
Once you have a savings account you can set up a standing order so that money is transferred automatically to this emergency fund saving account.
In this way you will not miss any cash transfers to that account.
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