An emergency fund is money put aside for the worst case scenario such as job loss, major repairs or medical bills. How much money should be in an emergency fund? This varies according to a family’s risk tolerance and expenses. Some people might be comfortable with $1000, while others might want a year’s worth of expenses. In tough financial times, how is it possible to find $1000, let alone several months’ worth of living expenses?
Put Away a Dollar a Day, No Matter What
A dollar a day doesn’t seem like a lot of money. Over a year, a dollar a day in a savings account turns into $365, plus interest. Do nothing more than a dollar a day, and in less than three years there will be $1000 in the emergency fund. Set an achievable goal to begin the pattern of saving for tough economic times.
Create an Automatic Savings Plan
It is easy to spend money that is in a bank account. It is much harder to spend money that is in a different savings account, online savings account, or a flexible term deposit. Create an automatic savings plan that withdraws money every paycheque and deposits it in another account that is difficult to access. This money will become the basis of an emergency fund.
Create a Budget and An Allowance
Track spending over a week and a month to see where the family budget goes. Then examine areas that could be reduced. Send the found money to the emergency fund. Remember to add a small allowance so that each person in the family can spend a small amount of money freely. Just like dieting, spending a small amount of money on fun can prevent binge spending later on.
Save Money By Listing Wants and Needs
Find money by evaluating wants and needs. Running to the store for milk? Instead, place the item on a list of household needs. Once a week, evaluate the list. Does the family actually need the items? Delete items that are no longer really necessary, and go shopping for the rest.
Choose Hobbies That Make or Save Money
Many hobbies are well worth the money, but when times are difficult it is best to choose free or money-making hobbies. Instead of a gym membership, commute by bike and take the scenic route. Make extra money by writing online, for local magazines, or for community newspapers. Use thrift store craft supplies to create homemade items to use as gifts or to sell at craft fairs. Place any money saved or made into the emergency fund.
Make Extra Money: Get a Micro Job
To make extra money for an emergency fund, try a micro job. These jobs are small, but by placing the extra money directly into an emergency fund, families can build one quite quickly. Micro jobs include:
- Delivering newspapers
- Walking dogs
- Landscaping and shoveling snow
- Casual child care
- Collecting used items and selling them for a profit
With some ingenuity and frugal common sense, it is quite possible for individuals and families to create a substantial emergency fund. An emergency fund provides a sense of security during an economic downturn, and it also provides a source of backup funds for emergencies such as vehicle breakdowns. By developing an emergency fund, families will have more financial security and will need to rely less on credit during challenging economic times.