Having an emergency fund can help you avoid creating debt when unexpected expenses happen. CNBC reports that "many Americans are one emergency away from financial disaster." An emergency fund can help you avoid financial disaster. Instead of paying off a credit card (and those high interest rates), you'll just have to top up your emergency fund again. And while the Federal Reserve notes that 40% of Americans don't even have $400 set aside for emergencies, most money experts agree that you should have an emergency fund of at least $1,000.
So one of the biggest struggles people encounter when it comes to an emergency fund is getting it started in the first place. It can seem impossible to save $1,000 or more when you are already struggling to pay off debt and meet your monthly expenses. But it's not an impossible task! Here are three ways that you can quickly build up your emergency fund without feeling the pinch.
Build Up Your Emergency Fund With These Three Ideas
Bank Any Unexpected Income
Everyone loves unexpected money. Whether it's a refund on your tax return, a check in the mail for your birthday, or a rebate on a big purchase, we treat these windfalls as "free money." We often end up spending them on a nice meal out or a new pair of shoes. While you are building your emergency fund, though, unexpected income is an ideal way to build up your savings without breaking a sweat. Deposit any money you get outside of your normal income straight into your emergency account. That way it's like you never had it, and won't miss it.
Sell Off Your Stuff
When you need to build up your emergency fund quickly, selling your stuff is a great way to do it. If you can, have a garage sale. This provides immediate income with a weekend's worth of effort. Listing your stuff online can be good, too. But be aware that this method can create more of a "slow trickle" of income since it can take a while for items to sell, and they'll likely sell one at a time. Clothing is always a popular item to sell but look for bigger ticket items, as well. Could you go without a second television for a while? Are you really ever going to fix up that bike? Focus on the goal of creating your emergency fund and be ruthless about looking around your home for items to sell.
Embrace the Gig Economy
The gig economy is perfect for those who need to make some extra cash quickly. That's because there is no heavy commitment involved. You can do these side gigs when you have extra time for as long as it takes to build up your emergency fund. Consider setting aside a month or two to dedicate to picking up gigs. Sign up as a driver for Uber, become a dog walker in the evenings, or run errands for others on the weekends. Giving up your weekends or evenings for a little while will help you build up that cash fast. And once your emergency fund is in place, you can give up the gig (or keep using it to pay down your debt!).
Other Tips for Building Your Emergency Fund
- Put your emergency fund in a separate account. If it's not in your regular bank account, you'll be less tempted to spend it.
- Set a reasonable goal. Giving yourself a reasonable goal to meet can help motivate you to keep saving. Even the slowest savers can usually build a healthy emergency fund within a year.
- Only use the fund for actual emergencies. New shoes aren't an emergency. But car repairs that could prevent you from getting to work definitely count.
Creating an emergency fund can be an important step to getting out of debt and taking control of your finances. Take on the challenge and see the difference it can make for your financial health.