How To Build An Emergency Fund Fast
You never know when an emergency will strike. It could be a car accident, medical bills, or some other unforeseen event that leaves you in dire straits. In order to protect yourself from the unexpected and prevent your finances from spiraling out of control, it’s vital that you have an emergency fund. While building up an emergency fund can seem daunting at first…especially if you’re living paycheck-to-paycheck, it is totally doable and we’re here to help you!
Building an emergency fund is critical for financial security and, more importantly, peace of mind. Many Americans admit to struggling with anxiety because of financial stressors at home. While an emergency fund won’t solve all of your financial problems, there is peace of mind in having an emergency fund.
3 Steps To Build An Emergency Fund Quickly
When you’re trying to get your finances in order, everyone talks about getting out of debt, buying a house, and building an emergency fund. Whether your emergency fund is a “baby” fund at $1,000 (the bare minimum) or you have 6 months of expenses saved, evaluating where you’re at and setting goals will help you achieve them much faster.
Evaluate where you’re at.
You can’t move forward unless you know where the starting line is. The baseline is where you’re at right now. Remember this is a starting point! This isn’t the time to get fancy and try to make your finances look better than what they are.
Start with an evaluation, and be brutally honest with yourself. If you’re spending way too much money on fast food or makeup, don’t beat yourself up over it – just fix it.
In order to do a thorough evaluation, you will need to go through all of your accounts and look at how much money you have and what you’re spending your money on. Check your bank account, PayPal, CashApp, etc. This includes prepaid debit cards or any other accounts you may stash money and spend money from.
What does your money situation look like? Have you been spending more than you make or is your income higher than your expenses? Do you have extra money each week or each month? How much extra do you have? Write all these numbers down, as they’re equally important in figuring out where you’re at, and fixing the leaks. We’ll talk about that in a moment.
I like to print off my bank statements and go through everything line by line to see where my money is going. You can print 1, 3, 6, or even 12 months off at a time. It all depends on how in-depth you want this financial audit to be.
Fix the leaks.
After I’ve printed off my bank statements, I go through them with highlighters. I highlight necessary expenses in one color. These are things like rent or mortgage, utility bills, and groceries. Then I highlight all the unnecessary expenses in another color. These might be dinners out, online shopping purchases, a gym membership you’re not using, a subscription that you don’t need. I also use one more color to highlight my questionable expenses. These are things I think I need (or things I just really want that I’ll try to keep in the budget). You’ll probably find that going line by line through your entire bank statement (and PayPal, Venmo and CashApp) is very eye opening!
Is Starbucks a regular line item in your bank statement? How often do you go through the drive-thru? How much did you spend on your last date night? How many last-minute trips did you have to make to the grocery store because you didn’t have a meal plan? How many times did you buy soda or snacks from the machine at work?
I like to call all of my unnecessary expenses “leaks”. If you want your boat in tip-top shape, you need to fix all the leaks! I love the way Benjamin Franklin sums up my thought so well, “Beware of little expenses; a small leak will sink a great ship.” OK…so maybe he’s the reason I like the term leaks so much!
Budget leaks are going to be different for everyone! It’s super helpful to take the time to figure out what yours are. While going through your bank statements, the leaks will usually become clear pretty quickly!
Many of us have expenses every week, or sometimes even every day, that we don’t consciously take into account when evaluating our financial situation. They may be small purchases that are less than $5 or $10 each, but they tend to add up quickly. Those tiny leaks that you don’t even think about are often most dangerous ones, because you don’t even realize you have them!
It doesn’t matter how much money you make or how small you think the leaks seem…you have to fix the leaks!!! If you add up all the “little” leaks over a 6 or 12 month period, you’re going to notice your boat is sinking much faster than you may have realized. No matter what, the leaks need to be patched, right? Small or large, they’ll still cause problems.
Before you send me hatemail, let me tell you that you don’t need to cut all unnecessary expenses over night. For example, if you’re used to going to Starbucks every morning, you don’t have to quit cold turkey. Buy coffee to make at home and see how close you can get it to what you’re used to. If you’re into fancy Starbucks drinks, see if you can find a Starbucks copycat to make at home.
You may realize you like the coffee you make at home even more than the stuff you get at the coffee shop. When my husband made the switch, someone suggested that the quality and freshness of his coffee beans would make all the difference in how his coffee tasted. My husband started buying freshly roasted coffee beans for his cups of coffee at home and he determined they were so much better than what he got at the coffee store. He now even roasts his own coffee beans at home. By ditching his “fancy coffee” habit, we save over $1000 a year. Crazy, right!
You can use the “leak” money to put towards your emergency fund, but I would be remiss if I didn’t also talk about adding extra income to your budget! Even if you make a large income, this can be beneficial in helping you get to where you need to be quickly!
Make more money.
Building an emergency fund comes down to a simple principle: spend less money than you make. Or you can look at it like this: more money in, less money out. If your income isn’t already covering your bills with some left over to add to your emergency fund, you need to make some changes. The good news is, these changes don’t have to be painful. The bad news? You’re not going to build your emergency fund overnight.
There are hundreds of ways to make extra money to build your emergency fund faster. I’m a huge fan of the side hustle and always have at least one or two going at any time. I’ve been a Color Street stylist for 3 years and love that I can make money just by talking about my fabulous manicures. You could start a blog as a semi-passive long-term income stream, or you could deliver for UberEats after your 9 to 5 job is over. Whatever you choose to do, just know that the amount of extra income you can earn from side hustles is endless.
Even if you can cut your expenses to next to nothing, you’ll most likely still need more income. YouTube is a wealth of information, complete with full videos about how people just like you and me became millionaires because of their side hustles. While the millionaire life isn’t everyone’s goal, you can easily make an extra thousand dollars a month (or more!) with side hustles. And for some people, an extra thousand dollars monthly is life-changing income!
The next steps…
One of my favorite quotes is a quote by Arthur Ashe that says “Start where you are. Use what you have. Do what you can.” and I think this is sooo applicable when it comes to personal finance. This is your PERSONAL journey. That’s why they call it PERSONAL finance.
No matter how intense you are with fixing your financial leaks or making more money with a side hustle, your journey is your own. There are going to be detours and setbacks. Life happens, things get in the way, and paying off debt can be painstakingly slow. However, you’re on the right path and you CAN do this! Keep reminding yourself of that! Negative self-talk can set you back even more, so keep it positive.
Do you have an emergency fund or a plan to start one? Leave me a comment!
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