THIS IS PART OF THE WEALTH, MONEY AND LIFE NETWORK SERIES.
Sometimes it’s easy to spend every last time we earn and then some. Being in debt is almost synonymous to “being American.” The American Dream is to not have to worry about money spent because, at some point, it will magically reappear. Maybe the streets aren’t paved with gold, but opportunities will eventually balance illogical spending.
The fact is, for most of us, that’s not true. That’s why it’s vital to have an emergency fund. An emergency fund is basically a certain amount of money that’s set aside in a liquid savings account, that can be accessed in cases of – here’s the keyword – emergency.
Having to go on a last-minute vacation does not qualify as an emergency. Needing to get a new shirt definitely not does qualify as an emergency. Losing your job and needing money to pay the rent and eat, does.
It’s actually fairly easy to save up an emergency fund if you budget wisely. Even these days when the economy is so awful, there are ways to save. Skip your morning Latte at Starbucks, put your change into a piggy bank, don’t buy a new outfit this month, etc.
If you’re starting from scratch and your salary seems too low to start a fund, start small. Open a savings account online, pref. one that earns “high interest,” and put in your first $25 when you get your next paycheck.
Every month, promise yourself that you’ll save $25. When you get into this habit, bump it up to $35, and keep going until you’re saving $50 – $100 a month, more if possible.
Ideally you should have about $5000-$8000 in your emergency fund.
I was keeping $5000 in a liquid CD which I considered to be my emergency fund. I’ve recently liquidated that CD, but I’m moving the money over to my ING account which I’m planning to label “DO NOT TOUCH.”
It’s so much better to have that money to tap into when something wicked this way comes in one’s life. Having the fund means you can avoid at least some of the stress that comes with not having enough money to pay for an emergency – bounced checks, collection agencies, bad credit, or even bankruptcy.
Here are some more tips for saving money:
– Bring cash to the grocery store, and a list of things you need. Overestimate on the cash that you bring a bit, but stick to your list when you go shopping. Put all of the change into a piggy bank in your room. Every six months or so, bring that to the bank to put into your emergency fund.
– Turn off your lights except when you need to use them at night. Take the estimated savings on your electric bill and put it towards your EF.
– Don’t go overboard on gifts. This is a hard one for some people. Remember, it’s the thought that counts. The money you spend on a gift for someone else is money that could be saved. I’m not advising you to stop giving gifts entirely, but you don’t need to spend large sums of money for your friends OR significant others. (Especially in boyfriend/girlfriend land, where sometimes gifts can end up costing hundreds of dollars.) Enter into a relationship (or friendship) in a healthy way, including setting gift expectations, will help everyone involved save money and get into good financial habits for the future.
– Rebate check? Screw saving the economy, “save yourself.” \ You know that $600 rebate check you received (or will receive) this year? Put it directly into an emergency fund. I know it won’t necessarily help the current economy that way, but what do you owe the economy? Poor spending habits got us all into this mess. To really help the economy, everyone in this country needs an emergency fund and needs to learn how to save!
What do you do to save?
Read what other WLM-Net Bloggers have to say about emergency funds:
Dollar Frugal: Emergency Fund Etiquette (sorry to DF for leaving this post off of my list originally!)
The LocoMono Website: Defining Your Emergency Fund
How I Save Money: Save Money in an Emergency Fund
Saving for a Home of My Own: Rebate Check —> Emergency Fund
Dividends4Life: Are there cracks in your foundation?