You have an emergency fund, right?
No? Hmmm. What are you going to do the next time your car breaks down and you need a new part to fix it so that you can get to work?
What’s your plan if you get laid off tomorrow and you can’t make the next mortgage payment?
Have you thought about what would you do if don’t have any money saved in an emergency fund? Borrow from your friends and family? Is that really what a responsible adult would do?
Are you planning to live off your credit cards? I don’t have to tell you how financially foolish that would be.
Why do any of that when you already have the money and means to start your emergency fund.
Here’s one sure-fire way you can start your emergency fund today.
Look at where you are already spending your money and instead of spending it on that, start saving it in an emergency fund instead. Pretty easy, eh? No one said that it had to be difficult to start saving for emergencies.
Starting an emergency fund or building onto one is so easy to do especially when you are already spending the money.
Unless you have plans to find a second job and use that money for an emergency fund (highly unlikely as your wants will increase as you see more money coming in) the easiest way to start saving for an emergency is use the money that you already have.
Where are you spending your money today? What can you cut out or cut back on, so that you can divert that money into an emergency fund?
Are you able to cut your cable bill for a few months? That will free up $50 or so a month. What about eating out for dinner twice a week, instead of three times a week? That will add up pretty fast, too, if you saved the money that you would have spent eating out and instead put it into your emergency fund.
Where else can you cut down, cut back, or eliminate money that you are currently spending?
Look through all of your current monthly bills and see if you can survive without the extra luxuries. Can you cut the landline and survive with just your cell phone? That will free up some money that you can gear towards an emergency. What about any magazine or DVD monthly subscription services? Can you eliminate those for a few months while you use that money towards starting your emergency fund?
Can you start bringing your lunch to work a few days a week so that you can save the money you would have spent eating out?
A few dollars every day adds up pretty quickly.
If you were spending $10 a day buying a couple of coffees and then eating out for lunch every day of the week, just cutting back twice a week can save you $80 a month. It doesn’t have to be a huge amount either, as $10 here, $25 there will add up quickly.
Also, cutting back or eliminating some luxuries from your life to build your emergency fund doesn’t have to last a lifetime. It just has to last until you have a healthy balance in your account. Then, you can go back to spending your money as you were before, if that’s what you want. At least you started building your emergency fund and have some cash in case of an unforeseen crisis.
How much should you save in your emergency fund?
The general wisdom is to save 3-6 months of living expenses.
Total all of your monthly bills and then times that amount by 3 for a minimum emergency fund. That may come out to a huge amount, which is okay. It doesn’t have to be saved all at once, you have time to build up to that amount. Divide that amount by 12 and see if the resulting amount is more manageable. Are you then able to save that amount per month and put it towards your emergency fund?
Start as small as you can, but the important part is to start. Once you see the money adding up each month, it will build momentum and you’ll have such a psychological rush knowing that you are prepared for an emergency if it happens.
Where should you put your emergency fund?
I use a high-interest savings account at ING Direct for my emergency fund, although you can use any high-interest savings account. I’ve built my emergency fund up over several months and keep adding to it.
It’s at a healthy level, but I know that it only takes one emergency for it to be wiped out. But, that’s okay, because that’s what it’s there for.
I work in IT and although positions are usually plentiful, there is a lot of competition for good positions. If I ever get laid off, I know that I have the means to live for a few months while I look for another position. I can’t tell you how much security this provides me.
ING Direct is a good choice, I think, because not only do they pay a higher interest rate so that your money grows, they are also an federally insured internet bank. This means that the money I put into my account is not part of my regular checking/savings accounts and is not connected to my debit card. So what, you say? The fact that I can’t as easily spend this money as I don’t have a debit card for the account means that the money stays where I put it.
Money is automatically withdrawn from my chequing account into the high-interest account and accumulates. It’s out of sight, out of mind. It will take a day or two to access the money, but I’ve never had any problems transferring funds back into my chequing account in cases of emergency. It’s very important that the account be one that you don’t use on a daily basis or one where you are easily tempted to spend the money on non-emergencies.
Contact me if you do end up opening an account with them, as both you and I would receive $25 each (you for opening the account and me for referring you). You would already be $25 ahead. How sweet is that?
Get started today with this one sure-fire way to start your emergency fund today. You will feel so much better knowing that you have some money available in case some unforeseen crisis happens.
You’ll be able to handle any emergency because you were prepared financially for it. Don’t delay on this very important step in your financial freedom.
Where else can you find the money to start or build your emergency fund? Let us know by leaving a comment below. Thanks!
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ING Direct sounds like a great company. I opened a savings account, which I don’t have card access too. It helps me stay away from spending it. This is a really important post because today so many people are just spenders and living for the moment. I have been thinking about how I can put a better fund together and have decided to put away 10% each week I get paid.
Alex´s last blog ..How To Survive A Scary Movie, Entrepreneur Style
Hi Alex,
I’m happy to hear that you already have an emergency fund and that it’s one that you can’t access as easily. You’re right, it does help you not spend that money on other non-emergency things.
10% per week is a great amount to be putting away, just in case. The peace of mind that it provides is priceless. Good for you for recognizing that.
Thanks,
Karen
Karen,
An informative post which I found very interesting. Okay, so I’ve not got an emergency fund, yes I do need to get one going. Is there a minimum amount required to open the account?
Thanks for the information; it’s very useful
Regards
Paul
Paul´s last blog ..It’s only skin deep
Hi Paul,
I believe you open the account with $100 initally. After that, you link your bank account to your ING account and can transfer funds between the two accounts. Also, there are no service fees associcated, which can save you lots of money overall.
I agree – you really need to have one, just in case. None of know what the future holds and it certainly gives you peace of mind in case some crisis happens. If not, it can just sit there, gaining interest, until it is needed.
Thanks,
Karen
hi Karen, great post and very in keeping with what I’m working on at the moment.
I think it’s important not to go cold turkey on cutting expenses as that’s not sustainable. You need to make a few tweaks and save money from lots of different sources as you suggest.
You can even start small and challenge yourself to save £1/$1 per day. Sure it’s not much but done regularly will build up in time.
thanks for sharing ( I have an Ing Direct a/c also – great company)
Matthew Needham´s last blog ..Wednesday Wisdom
Hi Matthew,
Yes, you can save from a variety of souces that you are already spending, or cut out one luxury bill for a few months until you have a good handle on saving for an emergency. Either method works, without being such a hardship.
The interest rates are very low right now, but they are higher than a regular ole bank savings account. Plus, there are a lot of other advantages to having a internet high-interest savings account. I like the fact that you can also name your accounts. I have several including, “emergency fund”, ‘house fund’, ‘travel fund’ and automate transfering money into those accounts.
Thanks for stopping by,
Karen
Apart from my savings account, I also keep at home a small box with a lock. Here I keep a good amount of cash for emergencies that require a relatively small amount of money.
I realized that I need to buy less CDs or avoid buying them too frequently. I think this is the main expense I can cut down on in order for me to increase my emergency fund and overall savings.
Julius´s last blog ..Closed-Circuit Televisions
Hi Julius,
Wow, do people still buy CDs?
I thought everyone downloaded what they needed these days. I would agree that spending $10-$20 per CD can be put to a better use. Why not just buy the song on iTunes for $0.99? and then you can save the different in an emergency fund.
I agree that keeping cash in the house is important for small emergencies that may pop up from time to time (I do this too), but you’re not leaving thousands of dollars in cash in your house, are you? If so, I would suggest opening up a high-interest savings account so that your money can be working for you and making more money. It’s too tempting to have the cash within easy reach. If it has to just sit somewhere, it might as well be in a bank that insured and that is giving you money to just leave it there. Just my $0.2
Karen
Thanks Karen,
Yes, I buy those CDs from independent bands who still don’t have recording contracts. I’m a huge fan of those artists. I don’t think any of them have explored putting music in iTunes, but that would be a good idea.
I only keep at home around a few hundred dollars (if we’d convert our currency to dollars), perhaps just enough for those small emergencies. I like the idea you gave though.
Julius´s last blog ..Closed-Circuit Televisions
I’m glad that you are considering starting an emergency fund outside the home. A few hundred dollars also provides peace of mind for minor emergencies, but having something set up to automatically build up over time, will provide greater peace of mind if a larger, unexpected emergency were to happen.
I’m curious about Ally and ING because my current savings account sucks! My savings is in a savings account and I view it as my emergency fund. It’s not a lot but will come through if needed.
As for Julius, I tend to keep very little cash. If I need it, I can walk or drive over to an ATM or bank. Everything is so readily accessible, not to mention you can use your debit or cc.
Moon Hussain´s last blog ..My Three Pronged Approach To Creating My First Niche Website
Hi Moon,
Yes, it’s easy to go and get some money from the bank or an ATM, but that’s the point – it’s *too* easy.
An emergency fund should only be used in emergencies, not everyday or every month activities. Think of major emergencies, (i.e. you get laid off, you need to fix your car, you need to fly home due to a family situation, you have to buy a new water tank for your house, etc). Using your credit card is these situations is not ideal as you are borrowing with principal. Most of the time you will be paying 2-3 times in interest what the emergency would have cost if you had just saved up the money in your emergency fund and paid for it in cash.
If you are not happy with your savings account, shop around. There are tons of resources to compare interest rates. Make your money work for you.
Karen
Hey Karen,
I have actually had an ING Savings account for over a year now. You’d think I’d have some good money in there but I don’t just yet. No job right now. And we’re not very good with saving money and working on getting better at that.
I do have to say though that I love the account because it allows me to know I have money that I can’t just access “easily” whenever I want it to spend. I like that. I do have money in there and always have had, at least a small amount and half of the time I’ll forget how much is in there and it’ll just sit.
I don’t check the account all that often or my checking account.
Very, very informative post.
Eric´s last blog ..Build Your Blog With Fire In Mind
Hi Eric,
Even though it’s not very much, I’m sure that it will grow over time. I hope you have some peace of mind knowing that the cash is there, in case you do need it. Plus, this is not a race. Building it up will take time, as much time as you need.
Yes, not being easily accessible is a great advantage for ING. Forgetting that it’s there is a sure-fire way to let it grow over time.
I’m glad that you found the article informative.
Thanks for stopping by,
Karen
Fine advice especially in the current economic climate.
The best emergency fund is at least three months net salary. This may seem like a tough ask however one way is to spend $1 in $10 on your emergency fund. Pay yourself first as Robert Kiyosaki says. Most people find putting 10% of their monthly pay cheque difficult. I adopted a different technique. I used the approach of buying 1 brand under my usual and dropping things like buying that coffee once a day. That simple step produced $150 a month. My wife and I noticed no real difference in lifestyle. Except transferring the $150 to savings felt good.
Welcome Andrew,
Having 3 months salary is a good start, but if you get laid off, depending on the job environment, more may be needed. Particularly, if your skill set is not current or in demand. Just starting one is a positive first step and the amount can be adjusted accordingly. I’m a firm believer in paying myself first – before my bills or rent is paid, money is automatically transferred. It makes it so much easier.
That’s a great tip and here’s another one. Why not replace specialty or luxury products with their generic equivalent and to put that money away into an emergency fund. A lot of generic products (i.e. groceries) are the exact same products but with different labels. That way you can still have your favourites, but you’re also saving money. Every little bit helps.
Thanks for stopping by and sharing.
Karen
Thanks for taking the time to reply Karen, financial education is something I strongly believe in.
hi karen,
how are you?
thanks for this article, it’s given me some food for thought with our home budget. the financial/ IT sector has been so unpredictable in the last year and i agree that investments of this nature may deny you of certain luxuries in the short term but it cant be compared to the rewards in the long term.
i will definitely look into ING
take care
Hi Ayo,
That’s great that you are going to look into ING and starting your emergency fund. Your peace of mind for the long term is worth more the short term pain of redirecting money from luxuries into what’s necessary.
Thanks,
Karen