The Ultimate Guide to an Emergency Fund (Even When You’re Living Paycheck to Paycheck)


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THE ULTIMATE GUIDE TO AN EMERGENCY FUND (EVEN WHEN YOU'RE LIVING PAYCHECK TO PAYCHECK)

Check out the ultimate guide to an emergency fund (even when you’re living paycheck to paycheck).

But before we dive in, let me ask you if you had a $1,000 car repair, could you hand over $1,000 cash and pay for it today?

Could you pay cash for a $1,000 medical emergency or plane ticket?

Or would you have no choice but to swipe your credit card?

See, credit cards have that plastic magic power. Swoosh that bad boy, and you don’t need to worry about anything until next month. 

If this sounds all too familiar, I hear you! At one point, I racked up over $13,000 in credit card debt. How? Because I did the swipety swipe thing too much! Ugh!

My $13,000 credit card debt on top of my $22,000 student loan debt made me feel sick to my stomach. And, once I realized everything was maxed out, I had no choice but to get my finances together. 

If you’ve ever felt like you have no idea where to even start, buckle up, in this post, I’m going to go over where to start so you can hit the ground running and start paying off your debt. 

Let’s dive in!

 (03/13/2020) Debt Free Update: I paid off my $36,000 debt in 8.5 months.

WHAT IS AN EMERGENCY FUND?

If you don’t already know what an emergency fund is, an emergency fund is a cash safety net. It’s a cushion of cash that helps you cover any unexpected costs that may get thrown at you when you least expect it. See, in the past, if I ever needed to pay for something above $500, my automatic instinct was to hand over my credit card, and your emergency fund is built for reasons exactly like that. So you don’t have to use your credit card.  

WHY DO YOU EVEN NEED AN EMERGENCY FUND?

Let’s be real; you never know what’s going to happen! Plain and simple. 

And when something does happen, you don’t want to have to pile debt back on top of the debt you’ve been working so dang hard to pay off. 

Let me tell you what happened to me, back in October (four months into my debt-free journey) I had taken my little Chevy Cruze in for a routine oil change and ended up walking away from that car shop with more than that. It turns out my baby had a leak that needed to get it fixed ASAP! Oh, and did I mention the nice man at the front desk quoted me $1,000. What in the world! Yes, $1,000. Ok, maybe it was like $900 something, but still.

When he handed me my invoice, I felt like I was in a horror movie, and everything moved slow-motion. I stared at the numbers and slowly walked back over to sit back down in the waiting room. My stomach twisted into a million bits and thought to myself, WHY NOW! I really didn’t want to have to use my credit card, but what else could I do? 

That’s when I remembered I had my $1,000 emergency fund. It only took 2 seconds to get excited and feel so proud that I could pay cash for this repair. If you’re wondering if it hurt to hand over so much cash, the answer is no. 

That’s exactly why I built my emergency fund for emergencies. Now let’s jump into this ultimate guide on how to build an emergency fund (even when you’re living paycheck to paycheck).

HOW MUCH SHOULD YOU HAVE IN YOUR EMERGENCY FUND?

You don’t need to have thousands of dollars stacked up. Like I mentioned above, its purpose is simply a cushion of cash to have on hand and ready to use to avoid having to get back into debt if somewhere along your debt-free journey an emergency comes up.

THE ULTIMATE GUIDE TO AN EMERGENCY FUND (EVEN WHEN YOU'RE LIVING PAYCHECK TO PAYCHECK)

A good place to start is $1,000. But some people will argue that $1,000 isn’t enough.

Homeowners are the ones I’ve read say this. They will mention that the $1,000 emergency fund is not enough to cover things like the high costs of home repairs. But, I don’t own a home, and for that reason, $1,000 worked great for me.

Should you save a higher amount, “just in case”? This is up to you. But I do want to mention that there is no reason to hoard money if you have debt. 

Save your first $1,000 and focus on paying off your debt. I mean it! Throw any other savings you may have above the $1,00 mark at your debt. Get rid of the debt altogether. It’s GO time!

Where do you start?

I should’ve mentioned this in the beginning, but if you haven’t already read The Total Money Makeover by Dave Ramsey, I highly recommend you do. Dave not only talks about the baby steps you need to take to get out of debt, but he also tells you what to do with your money once you get out of debt. I swear there’s just so much no one tells you about money growing up that it can feel quite frustrating. GRRR! 

But you’re here now and aside from starting ten years ago; the next best time to start is now. 

Step 1: SNAP INTO THE “YES I CAN MONEY MINDSET”

For some people, $1,000 will only take but one or two months to save up. But for others living paycheck to paycheck, $1,000 may feel unrealistic and impossible. 

Life is about doing the things that will make you feel uncomfortable. If doubt, fear, or anger discourage you go ahead and pout for 3 seconds, but right after that, I want you to snap out of it and believe you can do it.

Think about why you want to get out debt. Is it for yourself, family, kids, future? 

Step 2: BUILD YOUR BUDGET BABY

Having a budget is crucial to getting started on your debt-free journey. 

You won’t know where you’re headed unless you devise a plan and a realistic one at that. I went through my fair share of trial and error until I finally created a budget that worked for me.

Where is your money going? Give it a sense of direction. Is your money going towards a bill, your emergency fund, or a sinking fund? I recommend creating a budget where every dollar is assigned a home. 

HOW TO SAVE FOR YOUR EMERGENCY FUND

If you’re living paycheck to paycheck, take a look at this. If your long term goal is to save $1,000 in 6 months, start by setting aside $167 a month. That’s $42 a week $14 a day!

If you can’t make and extra $14 a day, you can certainly cut out $14 a day.

EXAMPLES:

  • Pay yourself first when you get paid.
  • Keep your spare change somewhere and deposit it once you have quite a bit. (It adds up, I did this and deposited close to $300 worth of change that had built up over time)
  • Clean up your accounts and get rid of any subscriptions you may have forgotten you’re even paying for and clearly not using. 
  • Cut out spending money on random things that don’t bring you happiness
  • Look into temporarily holding off on your contributions like your ROTH or 401K.
  • Pick up a side gig and make extra money.

WHERE SHOULD YOU KEEP YOUR EMERGENCY FUND?

To keep things simple, we will because that’s the way I like to do things. An emergency fund isn’t meant to build a ton of money on top of your savings.

Don’t waste your time trying to find a bank that’s going to pay you the most interest for your savings in the bank.

THE ULTIMATE GUIDE TO AN EMERGENCY FUND (EVEN WHEN YOU'RE LIVING PAYCHECK TO PAYCHECK)

Find a bank if you don’t already have one that doesn’t charge monthly fees, stick your savings in there, and keep it moving. 

During my debt-free journey, I closed the accounts I had with a bank I had for over 12 years because they charged me a $5 service fee every month. 

Why did it take me so long to do that? Well, because it was only $5, it was my first bank, and I don’t know I guess I was emotionally attached. How dumb, right? Don’t be like me, close the account, and move on. I promise you’ll be ok, haha. 

And, If you’re wondering what bank I switched to its capital one 360.

Remember, your savings account is not meant to earn your money, especially on $1,000. Instead, it’s meant to save you from building more debt.

WHEN CAN YOU GRAB FROM YOUR EMERGENCY FUND?

I’m here to remind you that you are on a mission. That mission involves saving your first $1,000 emergency fund.

A huge 50% bikini swim sale at your favorite store, concert tickets, or Christmas shopping is definitely not an emergency.

Here’s a list of a couple of reasons why you may need to dip into your emergency fund. 

I do want to mention; this isn’t a black and white list. There are different life situations to take into consideration. If you ever need advice, I recommend this Facebook group.

EMERGENCY FUND EXAMPLES

  • Car repairs
  • Temporary job loss
  • Root canal
  • Fillings
  • Medical emergency
  • Natural disaster
  • Death

Basically, anything that is not planned and has to be fixed as soon as possible. Anything that can not wait to be added to next month’s budget.

CONCLUSION

The thought of not having enough cash to cashflow unexpected costs may never cross your mind. 

I get it; because we’re just so used to putting everything on our credit card. But imagine how great it will feel when you can cash flow unexpected costs… like just hand over the money, because you can!

I highly recommend starting an emergency fund if you don’t already have one today! It’s as easy as starting with $25 if that’s all you have right now. 

Tell me, have you built your $1,000 emergency fund?

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