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Everyone who’s ever had an emergency will tell you money is key to making good decisions. We make bad financial decisions when we’re broke and desperate.
That’s why having an emergency fund is vital to starting any personal finance journey.
We currently keep a mini emergency fund of $1000 while we’re paying our debt and so far it’s worked out great.
Now we have a five-month emergency fund becausewe’re debt free!
But it’s hard to save, hard to know how much to save, and hard to avoid the temptation of $1000 sitting in your bank account screaming to be used. Here are some tips we’ve used to save and keep our emergency fund.
A note to those on the other end of the spectrum, nervous about draining your savings that low, trust me when I say you’ll be fine, just breathe, commit, and lean in. For the rest of us:
1. Budget
Tired of hearing about budgets yet? It’s like being on a diet and getting reminded over and over that you can’t have dessert. But the budget is the key to achieving your goal. Without a budget, your money will get lost in other “important” purchases and you’ll be wondering why you’re 6 months in and no richer than you were to start. Start that budget!
2. Sell Something
We sold old textbooks, clothes, furniture, even a toaster. Anything that wasn’t vitally essential to our comfort had to go. Craigslist is a familiar place to start but there are plenty of ways to sell stuff without leaving the couch. OfferUp is an app that allows you to post and put offers on items in your area and you cansell your clothes online to sites like ThredUp or Poshmark.
Related: How to Get Paid for Decluttering
3. Drop the Nonessentials
Cable, your landline, gym membership, any and all subscriptions, you name it. We have money flow out of our accounts that we barely think about. Look through your statement and consider relinquishing one or two things.
It doesn’t have to be forever but you may realize you didn’t need it as much as you thought you did.
4. Commit to notSpending for a Period of Time
If this girl can go without shopping for 2 years then you can go for a month. There are all kinds of things you can fast for a period of time that wouldn’t be sustainable long-term but are realistically doable for 1-4 months. Here are some posts with great suggestions on cutting your spending at
I love no-spend challenges (so much I wrote a book on how to do them well.) They help you cut out spending in the short-term to build better spending habits and pad your bank account fast.
Now that you’ve got your emergency fund:
Keep your emergency fund out of sight and out of mind. I like to say “don’t give yourself more credit than you’ve earned.” Open a credit union account that doesn’t charge fees for just letting your money sit in checking. Leave the card at home. I leave mine in the inconvenient file folder with the rest of my financial documents.
Then go pretend it doesn’t exist. It’s there if your car dies, you have to make a trip to the ER, your pet eats that leftover chocolate cake you left on the counter (how dare you.)
Running out of something isn’t an emergency; paying rent isn’t an emergency.
These are things that should be in your budget. Don’t give yourself the temptation to spend your emergency fund, you’re not going to be perfect so put parameters on your money to help yourself succeed.
And start saving on things you buy regularly so you can pad your checking account. We had emergencies we were able to cover without using our emergency fund because we worked on cutting our spending every month. Here are some ideas to get you started:
- UseBlink to save on prescriptions.
- EyeBuyDirect to save on prescription eyewear.
- Energy saving methods like low-flow showerheads to reduce our utility bill.
- Sites like Restaurant.com for dining deals.
- Groupon and LivingSocial for deals on activities.
- ThredUp for nice secondhand clothing at steep discounts from retail.
- Take advantage of free trials at gyms.
- Shopping through Ebates when making any purchases online will get you cash-back from virtually any retailer.
- Apps like ibotta and Checkout51 to save at grocery stores and other big-box retailers.
- Use healthcare sharing to save big time on health insurance.
Jen Smith is a personal finance expert, founder of Modern Frugality and co-host of the Frugal Friends Podcast. Her work has been featured in the Wall Street Journal, Lifehacker, Money Magazine, U.S. News and World Report, Business Insider, and more. She’s passionate about helping people gain control of their spending.
Related
FAQs
Use Low-Risk Accounts: Place your emergency fund in a savings account, or short-term certificate of deposit (CD). These options offer both liquidity and safety. Avoid Risky Investments: Keep your emergency fund away from risky assets like stocks or long-term investments.
What is the best way to keep an emergency fund? ›
Use Low-Risk Accounts: Place your emergency fund in a savings account, or short-term certificate of deposit (CD). These options offer both liquidity and safety. Avoid Risky Investments: Keep your emergency fund away from risky assets like stocks or long-term investments.
What are 5 things you can use an emergency fund for in life? ›
Some common examples include car repairs, home repairs, medical bills, or a loss of income. In general, emergency savings can be used for large or small unplanned bills or payments that are not part of your routine monthly expenses and spending.
How to save $1,000 emergency fund? ›
Every pay period, ask your employer to deduct $100 from your paycheck and transfer it to a savings account. Ask your HR representative for more details and to set this up. 2. Ask your bank or credit union to transfer $100 from your checking account to a savings account every month.
What is the 50 30 20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
What is a realistic emergency fund? ›
While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
What is a realistic emergency fund amount? ›
People have different estimates about the best amount to save in an emergency fund, and the answer will depend on your income and spending habits. Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses.
Is $5,000 enough for emergency fund? ›
Saving $5,000 in an emergency fund can be enough for some people, but it is unlikely sufficient for a family. The amount you need in your emergency fund depends on your unique financial situation.
Is $1,000 enough for emergency fund? ›
How Much Should I Save for My Emergency Fund? Let's talk about how much to save for an emergency fund. That answer depends on a few things. Starter emergency fund: If you have consumer debt, you need a starter emergency fund of $1,000.
Which budgeting tips would help you stay on track financially? ›
8 Budgeting Tips to Help You Stay on Track
- Be Realistic. ...
- Don't Cheat Yourself. ...
- Review Your Budget Regularly. ...
- Get On the Same Page. ...
- Keep Track of Every Penny. ...
- Realize That Not Every Month Will Be the Same. ...
- Keep an Eye on Your Debt. ...
- Expect the Unexpected.
“Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.” Just look at the story of former custodian Ronald Read for a perfect example.
What does the 60/20/10-10 rule represent? ›
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings. Once you've been able to pay down your debt, consider revising your budget to put that extra 10% towards savings.
How many Americans have no savings? ›
While nobody really wants to tap into their emergency savings, most Americans couldn't even afford to do so if they had to. A stunning new Bankrate survey of 1,030 individuals finds that more than half of American adults (56%) lack sufficient savings to shoulder an unexpected $1,000 expense.
How many Americans don't have $500? ›
How much money Americans have in their savings accounts—nearly half have less than $500. Nearly half of Americans have $500 or less in their savings accounts, an amount that leaves them vulnerable to unexpected expenses, according to a GOBankingRates survey of 1,063 U.S. adults conducted in November 2023.
How many Americans live paycheck to paycheck? ›
A majority, 65%, say they live paycheck to paycheck, according to CNBC and SurveyMonkey's recent Your Money International Financial Security Survey, which polled 498 U.S. adults. That's a slight increase from last year's results, which found that 58% of Americans considered themselves to be living paycheck to paycheck.
Is $10,000 too much for an emergency fund? ›
Those include things like rent or mortgage payments, utilities, healthcare expenses, and food. If your monthly essentials come to $2,500 a month, and you're comfortable with a four-month emergency fund, then you should be set with a $10,000 savings account balance.
Should you put an emergency fund in CD? ›
An emergency fund can help you avoid financial disaster by providing you with money when you need it. You'll likely want to keep your emergency fund in a high-yield savings account. Putting the money into a CD probably isn't a good idea because CDs require you to tie up your cash.
How much cash should you keep in an emergency fund? ›
While you're working, we recommend you set aside at least $1,000 for emergencies to start and then build up to an amount that can cover three to six months of expenses. When you've retired, consider a cash reserve that might help cover one to two years of spending needs.
Should I keep emergency fund in checking or savings? ›
The best place to keep your emergency fund (think three to six months of living expenses) is separate from your regular checking and savings accounts so it can be earmarked for emergencies only.
