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How to Start an Emergency Fund

Updated on July 16, 2008

If you currently have no money in savings, starting an emergency fund can be a daunting task. It can be especially frustrating when you hear that you should have 3-6 months worth of expenses in savings to cover anything unexpected that might come up. The chances are good that if you have no money in savings you probably have debt as well. This debt can be a mortgage, car loan, student loan or the worst kind - credit card debt. How can you go about building up a savings account if you have no extra money and owe people money on top of that?

If you are serious about starting an emergency fund and/or getting out of debt then it is time to get started. The first thing you need to do is stop spending money. I am not just talking about the extras here, but any spending at all. Put a moratorium on spending for at least a week. It will probably feel different and may be very hard to stop spending money. But every penny that you don't spend is yours to keep. Have you ever heard the saying "The best way to double your money is to fold it up and put it back in your pocket."? This saying is very true! All the money that you don't spend is money that can either pay the bills you owe on or put into savings.

I am a firm believer that everyone needs an emergency fund. It took us a long time to realize this. I remember years ago when for the first time we had $1000 in the bank that didn't already have a place it was supposed to go. It took me awhile to get used to having money that wasn't already spent. For so many years we lived hand to mouth, and frequently we spent our money before we even got paid. Starting an emergency fund was the key for us to stop living paycheck to paycheck.

So now that you have stopped spending your money you need to sit down and figure out where your money needs to go each month. Not where you want your money to go, but where it needs to go. You could call this a budget, but you will never be able to save money if you don't know where your money is going. Write down the minimums that you need to pay to everyone - the gas company, the credit card, gas in your car, food on the table (not eating out), etc. You can't not spend money forever, so you need to figure out what you have to spend money on. Clothing is not an essential purchase at the moment and all eating out should stop for awhile.

Any extra money each month should go towards the emergency fund until you have a comfortable amount in there. For us in the beginning that amount was $1000, then after about a year of this we bumped it up to $2000. We were still trying to payoff debt at this point, so having a smaller emergency fund was the best thing for us then. If you have debt to payoff, a smaller emergency fund is what you should be working towards as well. Baby steps are the key to staying motivated. So reward yourself with something small each time you hit a milestone in your savings goals.

You might find that you don't have a lot of extra money each month to go towards savings. If this is the case, you need to raise some extra money in order to get money into savings. Have a garage sale, sell things on Craigslist or EBay, work overtime, get a second job, baby-sit someone's kids, cut out the extra cable channels, get rid of the cell phone, barter for things you need so that you have extra money to put into savings, sell your plasma if you have to. You will never be on solid financial ground if you have no savings.

Do these extra things for as long as you can handle them and you will see your savings account grow and your debt dwindle. Having an emergency fund is one of the keys to getting ahead financially. Times are tough right now, the economy is suffering, expenses are higher than ever before and paychecks are stagnating. One thing you can control is your budget and your financial future. By having money in an emergency fund to handle anything that might come up you will be well prepared for your future!


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    • trish1048 profile image


      10 years ago

      Hi Jennifer

      I've found what works for me is my water cooler bottle.  I throw change in it and have found when I was a bit short, I cashed it in.  I was able to go on a mini vacation to a friend's house.  The money paid for my gas and tolls.  It felt good that it didn't have to come out of bill money.

      Now, the goal for me is to fill it to the top without touching it. My guess is it would pay me close to $1000. The two times I cashed it in was once for $200 and another time for $120. The jar was maybe 1/8 full. What I like about it too is that it is painless :)


      Thanks for sharing,


    • proudgrandpa profile image


      10 years ago from Charlotte, NC

      Having an emergency fund is a sign of hope for your future. I have already stated that I don't do debt. This, like the realization that you had money in the bank that wasn't already commited to be spent makes your steps lighter and the sun a bit brighter. Good Stuff again. Thanks, NEIL


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