MomWork will be a feature of the forthcoming “Your Money Mom” podcast). MomWork is a short (you should be able to complete in less than 30 minutes) money to-do to help you make progress or get more organized with your financial life.
Why Should You Have an Emergency Fund?
There’s a lot of ways to put this–if you don’t have an emergency fund, get one STAT!
This may sound harsh, but if you don’t have an Emergency Fund, it’s like your hair is on fire. You would do everything immediately to get your hair fire put out, and it should be the same with an Emergency Fund.
Do everything possible, as soon as possible, to get an Emergency Fund in place. That way, a big unexpected bill, car repair, or other (truly emergency) expense won’t wreck you.
And yes, I’m capitalizing “Emergency Fund” throughout here, because it’s that important.
Do you have an Emergency Fund? Not just extra money in your checking account, but a dedicated account that you don’t access except in an emergency?
My recommendation? The start should be an Emergency Fund of $1,000, in an account you won’t access–perhaps a savings account in a bank different from your checking account. Eventually, you should increase that amount, but don’t worry about that now.
What exactly is an Emergency Fund?
First off, let’s explain that an Emergency Fund is for true emergencies–not a great sale at your favorite store, or a friend/spouse’s birthday you forgot, or “just because.”
I don’t generally advocate that you have a “giant” Emergency Fund as you begin to organize your finances.
Why? That’s because, once you have the Emergency Fund in place, you should be considering separate funds for those non-emergencies but bigger ticket items. That way, you won’t be raiding your Emergency Fund for non-emergencies.
[More on these funds to come, but suffice to say that these accounts will be specific to each family or person. For reference, I’ve set up for our family the following three savings accounts: education, travel, and home & car. Every month, a portion of income goes into those accounts.]
Your Steps Going Forward
1. Set up an Emergency Fund account.
If you don’t have an Emergency Fund, set up a savings account somewhere. Right away, set up an automatic withdrawal to this account as often as you are paid. You can look into higher-interest accounts (I like the Discover Savings Accounts for this, but right now the goal is getting $1,000 into it).
2. If it’s not funded, get it up to $1,000 ASAP.
If you have no extra money in your budget, or any consumer credit (such as credit card debt), you should still contribute to your Emergency Fund. Start with even $5 a pay period. You can up that amount as you have the room for it.
3. Get creative in funding your Emergency Fund.
(money nerd alert: Emergency Fund in the header above auto-corrected to “emergency fun.” This is probably only interesting/humorous to fellow personal finance geeks like me . . .)
Here are some traditional or non-traditional ways to get your Emergency Fund to $1,000 quickly:
–eBay
It may seem like an old chestnut, but eBay can be a surprisingly good way to earn money. The downside is that you really can’t control when things sell. My advice is to price things lower than the “going rate,” and allow buyers to make offers. Look around your house for a few items–new or rarely worn nicer shoes sell surprisingly well. Take 30 minutes or so to list them. Check eBay every day for sales, and send things off promptly when they sell. Not a big investment of your time to add cash to your Emergency Fund. Repeating this every few weeks, and it could mean some real money.
–check for unused/unwanted/pricey recurring charges on your credit cards
Take 15-20 minutes to look through your last few months of credit card statements. It’s likely you will find a subscription or two you realize you didn’t need, or don’t get enough value from, to warrant keeping them.
What kinds of subscriptions?
*magazines or newspapers (for those of us who are old-school).
*educational sites
*music services (Spotify, Apple Music)
*cloud services (iCloud, etc.)
*subscription boxes
I’m not saying to get rid of everything you love and hold dear, but rather be intentional about your spending. Do you need both Amazon Prime and Netflix? Maybe, but maybe not, especially if it’s only for a few months as you get to $1,000.
If you cancel one of them, put that amount in your Emergency Fund, and consider having it recur every month. Here are some ones that my clients have found and/or eliminated in recent months:
*Kindle Unlimited ($9.99/month).
*Audible subscription ($14.95/month)–(but double check that you have used all your credits, as canceling the monthly service forfeits any unused credits).
*Skillshare subscription ($9.95/month)
*insurance on a phone that is already paid off ($11-$15/month), or that you could replace with an older phone.
*Spotify subscription ($9.95/month)
*Birchbox ($10/month)
–if you have a mortgage, check if you are paying for, and potentially don’t need, private mortgage insurance.
To learn more about PMI and what to do if you want to get rid of it, read this article or this article.
–funnel any (or half) of unexpected income into the Emergency Fund
Did you get a bonus at work? Birthday check? Tax refund? Random $50 bill from your mom? Find $10 on the street? (without an obvious person nearby to return it to?) Extra giant tip?
Into the Emergency Fund it goes.
If you consider that to be too difficult or onerous, how about putting half of the windfall amount into the Emergency Fund? As you see the balance grow, you’ll likely consider upping that amount.
–consider a “no-spend” week
A no-spend period, whether a week, a month, or even longer ( Ann Patchett went a year, and Canadian Cait Flanders wrote a book, The Year of Less about hers), is a good way to become more intentional about your spending.
(Public Service Announcement: Don’t start with a no-spend year, at least without extensive planning! I found Flanders’ book super interesting and eye-opening, but her plan is not for everyone, to say the least.)
But you can easily plan for a no-spend week beginning a few days from right now. It may be a little tough, especially if you love to eat our for lunch every day or some other regular indulgence. Shop your pantry, do some creative meal-planning, and sign out of any online shopping sites (Amazon, I’m looking at you).
You can do anything for one week.
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Now it’s your turn. Do you have an Emergency Fund in place? Any creative ways to get there?