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Building an emergency savings fund is vital to avoid financial disaster. Yet most of us don’t have any emergency cushion to fall back on if something should happen.
In fact, according to CNBC, only 39% of Americans have enough money saved to cover a $1000 emergency.
That’s a shocking stat since emergency financial situations happen all the time. It is a huge contributor to our growing debt problems.
If you want to avoid financial disaster, you absolutely need to build an emergency savings fund.
You never know when an emergency will happen, there is no other way to plan for it besides having the money saved to pay for it when it happens.
Emergency Savings 101
Is a $1000 Emergency Savings Enough?
If you don’t have anything at all (or very little) saved for emergencies, then your first goal should be to save at least $1000 to pay for unexpected expenses.
This will help to give you a financial cushion if your car breaks down or an appliance needs replacing. Although this will help you get out of a bind, it’s not nearly enough to avoid financial ruin.
Just imagine if you get hurt and couldn’t work for months while you recover; or if you lost your job. Obviously, a $1000 emergency savings just won’t cut it.
How Much Do I Need To Save For Emergencies?
The amount you need to save for emergencies depends greatly on your current financial situation. The rule of thumb is to have between 3 to 6 months worth of expenses saved for emergencies.
In my opinion, six months worth of expenses should be your target. Now, this number is not necessarily your net income for 6 months. Unless you are living from paycheck to paycheck, of course.
It’s the amount of money that you will need to pay to meet your basic needs, as well as paying the minimum amounts owed on debt and other bills.
There are other considerations you need to make when calculating your emergency savings goal. For one, if you are not the sole bread earner in your home.
You would really only need to save enough to cover expenses paid by the highest earner. This would cover your family’s needs should something happen to either one of you.
Where to Keep Your Emergency Savings
First of all, you need to open a dedicated account. You should keep your emergency savings in a place that isn’t easily accessible, yet allows you to access your money when you need it.
Another thing to consider is to keep it in a bank other than the bank you do regular business with. This will help prevent you from “dipping” in to pay for things that are not considered financial emergencies.
Lastly, keep your money in a place that pays you the best interest rate. If you are going to keep your money in the bank, why not get the most out of it by earning the most interest.
I use CIT Bank for my emergency savings because they pay more in interests than any other bank so my money keeps growing.
Cit Bank is currently the best option and my recommendation for your emergency savings.
- Currently, they pay 2.40% APY through their savings builder account.
- Have no opening or maintenance fees.
- Compound interest daily to maximize your earning potential.
- Only require a $100 minimum deposit to open an account.
When To Use Your Emergency Savings
Typically, when an expense arises that you didn’t expect or see coming, you would use your emergency savings to cover it. But, here is the caveat, only if it’s a necessity.
For instance, you drop your cell phone in a sink full of water rendering it unusable. Most of us would consider this a major emergency situation, but it’s not. Well unless it needed for work.
In a case like this, it would be best to leave your emergency fund alone and save up to replace your damaged phone.
On the other hand, if your refrigerator quits working on you, replacing or repairing it would be considered an emergency expense. We all have to eat to survive, right?
A good rule of thumb for using your emergency cushion is if it’s a basic living necessity, such as food and shelter. If it’s needed to earn an income, examples would be your vehicle that’s used to get to work.
Or it will affect your current financial situation, such as paying unexpected bills that arise to avoid bad credit or late fees costing you even more money.
Avoid having to pay for costly home repairs with a home warranty program that pays for repairs and replacements should something happen. You can get a free quote here to find out if it’s worth considering.
How To Save $1000 For Emergencies Fast
It All Starts With A Budget
When you are able to live on a budget you are making a plan to live below your means and making saving money a priority.
Take the time to sit down and create a budget, make sure you include every single thing you need to in your budget.
This is really important because the one thing that causes people to fail at budgeting is unexpected expenses that seem to pop up all the time which weren’t included in their budget.
By doing your best to include everything needed in your budget, you are not only creating a budget you can live with, but you are also avoiding using your emergency savings to pay for those expenses that pop up unexpectedly.
Finding Money To Fund Your Emergency Savings Account
Next, go through your budget and see where you can squeeze a bit of extra cash out contribute to your emergency savings.
If you can do that, you are on the right track, just an extra $20 or $50 a week will do wonders. If not, you’re going to have to make it happen. Here are a few tips…
Cutting Out Non-Essential Expenses
Cut out any non-essential expenses that you are paying for. Go through your budget and look for things that you are paying for that you simply don’t need.
First, look for expenses that you are paying for that you don’t get your money worth out of such as memberships, subscriptions, or streaming services you don’t use much. If you can’t justify the cost, get rid of it.
Any money saved here can go directly into building your emergency saving up. The best part is that you really won’t even miss not having these things since they weren’t really needed.
Cutting Back On Essentials
Just because an expense is essential, doesn’t mean you can’t find ways to reduce those expenses. Take your grocery budget for instance, there are many ways you can save money on your grocery budget while still meeting your needs.
In fact, this is one of the easiest places to squeeze money out of your necessary expenses.
Don’t just stop at your grocery budget, how about shopping around for a better price on your insurance premiums that you need or bundling policies to save more money.
Has your credit score improved in the last year or so? Maybe you can rework your vehicle or home loan with a better interest rate.
You can even call your credit card companies and ask for a better rate. If your creditors don’t want to work with you, then transfer your balances into a lower interest rate card to save money on the interest you pay every month.
Trim is a great resource to help you detect and “trim” unnecessary expenses. They’ll find subscriptions you are paying for that you might not realize you are paying and don’t need. They can even find you better rates on cable, insurance and more.
Sell some stuff
One of the fastest ways to fund your emergency savings is to sell some of your stuff that you don’t need or want. Go through your closets, basement, garage, and attic to look for items that are just collecting dust.
You can sell you stuff online on Amazon, eBay, or even Facebook for larger items that are hard to ship. You can bring used clothing to a thrift store to sell on consignment or you can even list them for sale online on sites like ThredUp or Swap.com.
Earning Extra Money
Earning extra money is another sure fire way to grow your emergency fund fast. Can you work some overtime to bring in some extra income?
How about making extra money by finding a side gig? Maybe you have a talent or hobby that you could tap into to bring in extra money.
Then there are passive income streams, which is one of my favorite ways to make money. In case you don’t know, passive income is when you put in some upfront work that has the potential to bring in money for years to come.
The options to earn more money are truly limitless, you just need to think out of the box and take action.
Once you have a $1000 emergency savings
Once you’ve built your savings up to at least $1000, you can pull back a bit but don’t stop there. Remember, you need at the very least 3 months worth of expenses saved up.
Continue contributing a set amount on a regular basis. Have your employer deposit a specific amount of money from your paycheck directly into your savings account.
This way you don’t need to even think about it. Plus, after a few weeks of not seeing it on your paycheck, you won’t even miss it.
Staying on top of your expenses
Now that you have a decent emergency fund set up, you should find a way to stay on top of your expenses so you don’t need to use it for non-emergencies.
There are many options out there that are both free and paid. But since free is always better, here are some FREE options to check out.
Personal Capital is a free online money management tool that pretty much does it all. Connect your bank accounts and debit/credit cards to track your income and expenses with less effort.
Every Dollar is a budgeting app developed by Dave Ramsey. It’s similar to Personal Capital but since it’s a budgeting app, you can maintain your budget on the go from your phone.
Printable Budget Planners are a great way to track your money if you prefer pen and paper. I have a list of the best FREE printable planners listing here.
Need help creating a budget that you can actually live with? Sign up for the Build a Better Budget Bootcamp. It’s FREE so you have nothing to lose!!