An emergency fund can come in REALLY handy, giving you a cushion in case of job loss (or whatever else you deem an emergency). But building one is another story, right?
According to Bankrate.com’s monthly consumer poll, “28% of Americans have no emergency savings — none at all — and nearly half, 49%, don’t have enough to cover 3 months’ expenses.”
But you don’t have to be a statistic. Here’s exactly how to build a starter emergency fund in 30 days or less.
Day 1: Open up a savings account.
Open up a savings account using whatever bank you like — even a piggy bank that you write your name on works for now.
I use Capital One 360 because they let you easily create multiple, individually named accounts. So I have one named (appropriately enough) Jackie’s Emergency Fund. If you sign up with them too using this link, we could each get a small bonus. Or you could use Digit if you’d like to have your savings painlessly automated. (It’s my new favorite savings buddy.)
Day 2: Put at least $1 in your new emergency fund.
Funding your account means scrounging up at least $1 from somewhere. Dig through those couch cushions and coat pockets if need be, but get a dollar into your new emergency fund.
Day 3: Figure out how much you want to save up in the next 27 days.
I suspect part of the reason so many people are without an adequate emergency fund is that the whole idea of setting aside 3-6 months’ worth of expenses seems completely unrealistic. I know it seemed impossible to me for a long time. And who starts things that are impossible? So, don’t. Start something that’s doable instead.
Figure out how much you think you can realistically save up over the next 27 days. And the number you come up with? THAT will be your starter emergency fund. Don’t feel badly if it’s a small number, because any amount is more than you had before. It’s something that will insulate you from an emergency that much more than nothing. And any amount is a success.
Let’s say you want your starter emergency fund to have $100 in it. 100 divided by 27 is about 3.70. So you’d need to add less than $4 a day to your fund. Your options are to make more, spend less, or (ideally) both. Figure it out — getting creative if need be — and then send in today’s amount. Do a little happy dance while you’re at it, because you’re moving in the right direction! (Also, happy dances are fun.)
Day 4: Make savings a line item in your budget.
It’s really hard to save extra money, because who has “extra” money? So save FIRST and always instead, and then you’ll have it done.
Write the 27-day total you came up with into your monthly budget right now. Think of it as another bill, just like your cell phone or housing. (Don’t have a budget? Download my free budgeting printable.)
Oh, and don’t forget to send today’s amount in to your fund.
Days 5-29: Keep at it!
Just keep plugging away, sending in your $4 (or whatever) every day for the next 26 days. If you make or save more one day and want to get a jump start on the next, great! Go ahead and send that in early. Just make sure you aren’t cutting back too much, since you don’t want to have do dip into the fund to meet basic expenses. You only want it to be for emergencies.
Which reminds me, it’s time to figure out exactly what you consider an emergency. Me? It used to be only job loss. (But then I quit my job to work for myself.) So now it’s only medical expenses greater than my deductible. Everything else, I can either do without or wait on until I have the money.
YOU get to pick what constitutes an emergency in your life. So right now, make a list of the only things you’ll allow yourself to use that fund for. Just keep in mind that the more emergencies you have, the bigger your fully-funded emergency fund will need to be. Then stick to your list.
Day 30: Celebrate! (Then make savings a habit.)
Now’s the time to celebrate your progress. Go ahead and tell someone (me, if you like!) that you’ve met your goal and built a starter emergency fund. I promise I’ll be just as happy for you as the day I reached my first emergency fund goal.
This is also the time to add emergency fund savings to next month’s budget. (And every month after that.) Make saving for emergencies a habit, and keep at it until you reach whatever larger goal feels comfortable to you. (I have a year’s worth of expenses set aside now.) When you do have to dip into the fund (because emergencies happen to everyone at one point or another), don’t get upset. Instead, pat yourself on the back for having created the fund in the first place, and then get to replenishing it using the same methods you used to build it in the first place.
As someone who has gotten completely out of debt, I’d be remiss if I didn’t mention that here too. Sometimes people wonder whether they should pay off debt before starting an emergency fund. My answer is no, because an emergency fund actually helps prevent debt. So get your starter emergency fund done, and then worry about becoming debt free. (And when you’re ready for that next step, the Pay Off Debt app can help.)
Meanwhile, happy emergency fund building!