Life is full of surprises. Some of them are pleasant. . . but some of them are the other type. The kind you’d rather avoid. Like a clunking noise in your car that turns into an expensive repair, or a dishwasher that bites the dust pouring water all over your kitchen in the progress. There are hundreds of other unpleasant but common occurrences that can throw you, and your budget, for a loop.
That’s why it is so important to have an emergency fund. It’s bad having an unexpected expense–it’s worse having to go into debt to pay for it. Everyone I know thinks an emergency fund is a great idea–but few people actually have one. Many families feel it’s hard enough to make it to the end of the month without trying to put aside something extra. It’s easier to just hope nothing happens.
In the Army they have a saying: “Hope is not a strategy”.
So what do you do? How can you get an emergency fund started?
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Start Small
Little bits can really add up over time. Why not try setting aside a small amount every pay period for your emergency fund. Sure, $5 every two weeks doesn’t seem like much–but it does slowly grow. In a year you’ll have $130. Set aside $10 instead and it’s $260. If you can find a way to set aside $20 each pay period then in a year you’d have $520. . . It may not be a new transmission for the car, but it’s a start! Let the fund grow at that rate for a couple of years and you can build up some serious financial insurance!
Earmark Windfalls
Every once in a while we all come into some extra money. Tax refunds. Cash gifts. Someone repaying a forgotten debt. Sure, it’s tempting to use that money for a little splurge–but why not buy yourself some peace of mind instead? Try earmarking any “windfall” money you get as cash for your emergency fund. Since you weren’t planning on having the money to begin with, you won’t miss it!
Sell your Clutter
I bet you’ve got things around the house you no longer use that are in good shape. Why not get rid of your clutter and earn some money for your emergency fund at the same time. Hold a yard sale. Sell things on eBay or Craigslist. Sure, it takes a bit of time and effort–but you’ll wind up with some cash to add to your stash. . . and a neater house!
Pick Up Extra Work, for a While
We all work hard–the last thing most of us want is to add more work into our day. But if we are honest, I bet most of us have enough time and energy to do some extra, at least for a little while. Why not set yourself an emergency fund goal and then just pick up extra work until you have earned that much. It might be hard, but if you remember that it doesn’t have to be forever you can do it. . . just till you’ve met your goal. Even in a tough economy there are folks who need babysitters in the evening (and would be thrilled to have an adult instead of a 14 year old), pizza needs to be delivered, shops can use part time employees who will work evenings and weekends without benefits. Be creative!
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Once you’ve got some cash in your emergency fund, the hard part is keeping it there! Extra cash can be a temptation. Be very strict with yourself–remember that there is a huge difference between “wants” and “needs”. The whole point of an emergency fund is to have it there for unexpected needs. Try keeping your emergency fund money separate from the rest of your funds.
You can keep your emergency fund in cash. This works well for smaller amounts (and helps a lot if the emergency is more of a regional one–folks after Superstorm Sandy needed cash to buy gas). Some people find having extra cash in the house to be a serious temptation. It is hard to resist dipping into it and grabbing a $20 to buy a pizza, for bus fare, or to buy that new pair of shoes you saw.
Another option would be to put your emergency fund money onto a Visa Prepaid Card. It’s easy to load money onto it at your local retailer in small amounts (the video below shows you how to activate and use the prepaid card), but you can make a habit of normally leaving the prepaid card at home. On a daily basis you won’t be tempted to use it, but when an emergency expense crops up you can pull the card out of hiding and use it just like you would use any Visa debit card.
Want to take even more temptation out of the equation? Talk to your HR department at work and see if you can make a direct deposit to that Visa Prepaid card in order to build up your emergency fund. Most places will let you set up to direct deposit specific amounts instead of your full paycheck–so you can have them send $5, $10, $20 or whatever amount you choose each month onto that Visa Prepaid card!
Do you have an emergency fund? How do you set aside fund for it?
****This is a sponsored post****
Disclosure: I am blogging on behalf of Visa Prepaid and received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa’s. Discover more at http://www.VisaPrepaid.com or view more Visa Prepaid videos at http://www.youtube.com/visaprepaid.
This is a great idea! The prepaid card plus direct deposit is a great way to put money aside. But what happens if the card is lost/damaged? Say you have fire in your home, and the card burns up? Do you lose all that money or is there a way to retrieve it?
Kathy-I’ll have to check about that 🙂
Funny I have been doing that this year. My husband was unemployed for two years and we depleted everything we had financially. One of our projects is rebuilding our savings for emergencies. We started small with $25 a paycheck from each of us. This week I put our state tax return into the account since I used the federal to pay for some of the hospital bills I recently accrued. We are planning to open another account for a vacation too!
Jenn,
Great and timely post! I would add a couple comments, if I may?
Your ‘start small’ idea is exactly correct. I am absolutely a fan of “real” budgeting, as a financial planner, but realize most people will not take the time and energy to do that (although you frugal folk are a different breed 😀 ) and so your $5-or-10 a paycheck is a perfect start.
Tweak: put a rubber band around your wallet so you remember when you break a $20, to put $5 aside.
Where to put it is the hardest part. Lately I am a big fan of the internet banks like Discover, Ally Bank, or CapitalOne360 (used to be ING). You link it to your regular savings or checking account and set up an automatic transfer, $20 a month or whatever.
That way it is gone from your sight but can transfer it back easily and quickly.
Building the cash position is very important (for peace-of-mind) but most emergencies will honestly be covered by one’s credit cards in times of need. So it is important to make sure you have one card, used once a year or so to keep it current, but with low/no balance.
Your Visa Prepaid idea (and I know you’re being compensated) is something I’m lukewarm about. I assume you can take cash out against it, from any ATM? If you can’t then I do not think it’s a good idea because there are occasional emergencies that you simply need the ability/convenience of writing a check or withdrawing cash for.
I’d also be very careful about annual fees or percentage cuts – for disclosure purposes can you say if there are any for the Visa Prepaid?
The working part-time is an excellent idea. The hidden benefit of this is that while you are earning the extra income, you are NOT out, spending it!
Finally, there’s always too many things competing for your dollars. As Frugal Upstate, you probably already know and have said this, but the less *toys* you accumulate, the less you spend on the peripheral things around those toys. That is a lifestyle issue, of course, but bears mentioning – for six months you can put the extra money aside towards an emergency fund that you would have spent on [activity/process/material possession].
Best regards,
Trond Hildahl
Heartstone Capital Management