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This post is all about how to build an Emergency Fund fast.
If you have been stressed out about how to start saving for your Emergency Fund don’t worry, as I will take a deep dive into how quickly you can build an Emergency Fund for yourself.
With a little bit of dedication, goal setting and consistency, you will have an Emergency Fund with your desired amount of money stacked away for bad times in a matter of weeks or months.
As you might have seen for yourself, the last two years have shown that everyone absolutely needs to have an Emergency Fund. You need an Emergency Fund to help yourself when times are tough to navigate through recessions, lay-offs, pandemics, etc.
What is an emergency fund you may ask?
An Emergency Fund is a fund in which you keep money set aside and use this money ONLY for real “emergencies”. The money from the “Emergency Fund” is used for any unforeseen events or accidents.
When you start from nothing to build up your Emergency Fund, it’s easier knowing that you are setting yourself a realistic goal, which you will actually achieve. Many people differ when it comes to how much money their Emergency Fund should have. It can be any number that feels right for YOU.
An easy, achievable goal for example to save $500 dollars for your Emergency Fund could be the first step in building your Emergency Fund.
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How Much Money Is Enough For An Emergency Fund
Many people might think that $500 dollars are not enough for an emergency fund. However, when you first start to build up your emergency fund and you might still be paying off debts, $500 dollars is an achievable number.
When it comes to setting your goal for your emergency fund, you want to make sure that you can actually achieve saving for it. For a whole lot of people, it’s actually already quite difficult to set up an emergency fund of just $500 dollars. When people first decide to start paying off their debt, the last thing they think of is savings.
But savings are important, albeit if it is only $500 dollars. In case you come across a problem, where you need to spend money on an emergency, having $500 dollars can be a literal life saver.
Because your main goal when starting your debt-free journey is to pay off all of your debts, and so much of your income will go towards necessities and student loans, credit cards, etc.
You might not have enough left over at the end of the month to put towards anything else really. But you should put at least some money from your paycheck each month towards building your $500 dollar emergency fund, and if that’s only $150.00 a month, then that’s a bit over three months until you have your fund build up, which is totally OK!
Building a $500 dollar emergency fund is an achievable goal for most I’d say, it’s not right away $1000 dollars which seems quite frankly – when you’re broke – like a heck of a lot of money!
Once you have $500 dollars in that Emergency Fund, you continue to add as much as you can afford to that fund. Before buying anything else, continue to fill up this fund a monthly basis.
Here are 5 things to save more money for your Emergency Fund:
- Stop subscribing to streaming services. Cancel your subscriptions. Cancel Netflix, Hulu, etc. until you are out of the woods OR cancel them all for good (time wasters!). Instead, go to your local library and start reading books on personal finance.
- Stop buying coffee and muffins and snacks. Make your own coffee at home and fill up your to-go cup before your leave your house in the A.M.
- Stop shopping for stuff (clothes, beauty, random items). Don’t go to Target. Use up all of your beauty products until they are empty. Rediscover your clothes in your closet.
- Stop eating/dining out. Live on pasta if you have to, or sandwiches.
- Stop going grocery shopping on an empty stomach. Eat before you go grocery shopping and definitely make a list of the items you actually need. Check your inventory in your pantry and fridge beforehand.
Cutting the above items out will definitely assist you in stacking up your $500 Emergency Fund. Think about this, 3 coffees a week, 4 times a month equals to $60 dollars!
So here’s the deal: cut your spending habits in different categories immediately.
How To Start Saving Money For Your Emergency Fund
Set Goals To Build Your Emergency Fund
Everyone knows that if you really want to achieve anything in life, you must set yourself goals.
When you want to build a $500 dollar emergency fund, you need to create a due date so that you will have a timeline to achieve your goal of saving that amount of money for your Emergency Fund.
When I was paying off some of the last parcels of my debts, slowly, I continuously had that thought in the back of my head to start my emergency fund. My initial goal was to save $500. Once I reached that goal, the next $500 dollars will follow likely very quickly.
Looking back, even though this was very hard for me while paying off my debts, it ultimately was a good decision to start with an achievable goal.
Be Prepared: Know That Unforeseen Event / Emergencies Will happen.
I knew that I was definitely going to have spend money on an emergency within three months of starting my debt pay off plan for my credit cards. Had I not put this money aside, I would have had to reach for my credit card again. Expect that as you are paying your debts off, the emergencies will come…one after another…BUT…you will be prepared! During my journey of paying off my credit card debts, I came across a few emergencies. It really was a struggle.
Setbacks are never fun.
Ultimately though, you just have to pull through. I had to pay for five, yes five new tires and a new rim for my “brand-new-leased” car. Yikes! It seemed as if everyone and the world was coming between me and my goal of being debt-free and having some emergency money set aside to feel comfortable and safe.
Even though I had some setbacks which were annoying, I was prepared to some degree and didn’t have to carry around the debt for the new tire/rim. I paid it, transferred the money from my Emergency Fund account to my credit card and that was it.
It didn’t even hurt!
How To Quickly Build A $500 Dollar Emergency Fund
If you want to quickly build a $500 dollar emergency fund, then you have to first set yourself the goal of wanting to achieve to save $500 dollars.
You are going to need to allocate money from your income towards your Emergency Fund. This is where you will need to figure out how much you can allocate each pay period towards your Emergency Fund to get to $500 dollars fast.
How quickly it takes to build a 500 dollar Emergency Fund depends all on how dedicated and consistent you are with your savings goal.
Where Should I Set Up The $500 Dollar Emergency Fund
The next question is what account to use to set up your Emergency Fund. Many people believe that you need to put this money into an account that yields interest.
While choosing an account for your Emergency Fund to park your money that pays interest is not a bad idea, we do not really need to have this money in an account that pays interest.
You make your interest in other accounts, where you park more money for a longer time. Or alternatively, you
How to Keep Building Up Your Emergency Fund Beyond $500 Dollars
First, you want to make sure that your budget is all set up properly. I actually have dedicated an entire blog post to how to create a budget, which tells you all about how to create not only a budget but a budget that actually works for you.
If you already have your budget in place, then you most likely should have an expense category for the Emergency Fund already part of your budget. In this case, every pay day, you would automatically add an X amount of dollars to that fund and keep building it up until you have the desired amount.
If you do not have enough money set aside for your emergency fund, then you need to sit down again and go through all of your expenses.
See exactly where you can cut down even more money that you spent on items which could now go towards your Emergency Fund. For example, if you have 5 streaming subscriptions, which equals to probably more than $100 dollars a month, cut 3-4 subscriptions and put that money which you now have made available, to your Emergency Fund.
The same goes for other expense categories in your budget. Make sure you check where unnecessary money is spent, which you can use towards your Emergency Fund. You will see that cutting a few expenses from other categories from your budget will enable you to free up money for this purpose.
Once you have reached your goal of X amount of dollars, you may reintroduce those expenses cut from your budget back again but you will notice quickly that it can become quite addictive to keep building your Emergency Fund.
You need to set yourself a realistic goal that you want to reach. For example, many financial coaches say that you should have an Emergency Fund of at least three (3) to six (6) months worth. But whatever the figure is, ultimately you have to decide on that for yourself and your lifestyle.
Saving beyond 3-month or 6-month will be a matter of consistency and what suits your individual situation.
Dave Ramsey for example says, that in the beginning $1,000 dollar are enough for emergencies that pop up. Whether 1,000 dollar are actually enough is discussed in his post here
When To Use The Money From Your Emergency Fund
Once you have enough money in your Emergency Fund, you should never use this for every day life expenses.
Your Emergency Fund is not your checking account or the account you want to withdraw money from when you want to go shopping.
The Emergency Fund should only, and ONLY be used for real emergencies. Unforeseen events, such as your AC breaking down in the middle of the summer, or having to buy a new tire for your vehicle.
Here are a few more real emergencies for which you would dip into your Emergency Fund money:
- Unforeseen events, such as having to buy a plane ticket to attend an important event
- Helping someone you know who is going through a rough time (but be careful!)
- Anything else you would consider a dire emergency / unexpected expense that pops up out of nowhere
CONCLUSION: HOW TO BUILD AN EMERGENCY FUND FAST
In this post you learned about how to start an emergency fund fast. Whether you save 500 dollars or 1,000 dollars in the beginning is really up to your individual situation. The most important things is that you do not dip into your emergency fund for regular items that you want to purchase. As a matter of fact, you are only to use this money when real emergencies come along.
Lastly, when you take from your Emergency Fund, make sure you replenish that fund as soon as you can. Be consistent, diligent and don’t fall back into your old tracks. You will see, that saving more and more money that goes towards your emergency fund will be a process every pay period that will run like clockwork for you.
A sense of real security and calmness can be achieved by saving money for your emergency fund and gone will be the days when you needed to rely on credit cards in order to get yourself out of a pickle!