If you don't have much or any emergency savings, take heart. You're not alone.
According to Credit.com, many people aren't adequately prepared to manage paying for an unexpected expense or emergency. According to the Federal Reserve's 2014 Survey of Household Economics and Decisionmaking, 47% of Americans say that they wouldn't be able to cover a $400 emergency expense. That often leads to maxing out credit cards, taking out expensive short-term loans, or worse.
Here's a few tips to help you start and build an emergency fund in the fastest way possible (other than scoring a major windfall).
Start Focusing on the "Inconvenience Fund"
As the study mentioned, most Americans can't afford an unexpected $400 expense. This often times isn't even considered a true emergency...it's mostly an "inconvenience" like car tires, parking ticket, unexpected wedding or baby (or both) gift, school books, and just other necessary expenses that are higher than you budgeted for. It's for the inconveniences of life that are unexpected that you just roll your eyes and go "ugh". A true emergency is when your eyes get huge and you go "AHHHHH!!!!"
See the difference?
Ideally, you'd want this to range anywhere from $500 to $1,000.
Here's how to find the money for your Inconvenience Fund fast:
- Flexible Budget Items: Find out what you spend now using the Money Finder System (Available to you for FREE in the My Mentoring Portal Resource Directory and in your Women's Money Guidebook). See where you are spending more than you realize or need to on those flexible spending items and cut those back.
- Fixed Budget Items: Write a concise list of your needs and wants can help you identify what areas of your fixed budget you can cut back on. Think of all the extra money you could save just by cutting back on entertainment, or going without Netflix (or cable) for a couple months. Cool tools for this are the Spending Planner and the Women's Money Finder. (Available to you for FREE in the My Mentoring Portal Resource Directory and in your Women's Money Guidebook).
- Renegotiate Your Bills: Our needs change as our lifestyle changes, and we can save money if we take the time to see where we are over spending due to "over coverage". This can lead to big savings on things like insurance premiums, credit card interest rates, cell phone bills, checking account fees, etc.
- Gift Card "Diet": Buy gift cards for the stores you regularly go to in the amount of what you you've budgeted on groceries and entertainment, clothing, etc. Once you are out of gift cards, you don't spend. Period. You can also save more buy purchasing them through discount gift card sites. For example. If you shop at Walmart, you can get a 7.5% discount on most Walmart gift cards. That just saved you $7.50 for every $100 you spend. If you normally spend $300 a month on groceries, toiletries, etc., that's $22.50 a month you can put towards your fund, and you don't even had to reduce your spending. If you reduce your spending, buy cards at a discount and use coupons, that's TRIPLE SAVINGS.
Take the money you would have spent on items (flexible and fixed), and put it directly into the Inconvience Fund until it's fully funded, then use that same money and start creating an emergency fund.
We'd love to hear from you. Tell us how you are building your funds.