Everyone should have an emergency fund, a reserve of three to six months’ worth of living expenses. Most Americans struggle to save when trying to cut debt and cover all of life’s other expenses.
The best financial advice we give is to scrape together an emergency fund. If you don’t have any savings in the bank, you’re almost certain to end up in debt as a result of unexpected expenses.
If you haven’t started saving, don’t panic. Let’s get to this quickly.
- Set a goal. Get $1000 into a savings account quickly, $1,000 is a reasonable start to an emergency fund, it you make less than $20,000 a year then start with $500.
- Cut back on spending. Buy nothing other than essentials until you have the $1000 in an accessible savings account.
- Sell some stuff. Look in your closets and get rid of the stuff you don’t use or need. I guarantee you will find stuff to sell if you are intentional.
- Make minimum payments. Paying off credit cards is a great idea and makes sense but you must get the small emergency fund, at least $1,000, in place first. An emergency savings in place keeps you from having to use your credit card for emergencies.
- Automate savings. Set up an automatic transfer from your checking account, if you can save $25 or $50, each payday in addition to selling nonessential items you can get there fast.
- Full emergency fund. Once you have paid off all debts, less your home. Calculate how much you spend each month on essentials such as rent or a mortgage, utilities, food, car payment and insurance. Multiply this by 3 or 6 depending on the stability of your employment and income. This should be your desired goal once all debts are gone.
Boris G. Robinson is an entrepreneur, disabled veteran with 26 years of military service, financial Coach, and business coach with a passion for getting people out of debt and enjoying financial freedom. His background is in leadership development, coaching and financial education.
6 Tips on Building an Emergency Fund