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How to Build an Emergency Fund (that you won’t spend!)

By The Busy Budgeter | 10 Comments | This post may contain affiliate links

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How to build an emergency fund that you won't. !!!! This makes SO much sense! I've been trying for three years to build an emergency fund but we keep spending it! I can't wait to sit down with Hubby tonight and show him this!

How to Build an Emergency Fund 

If you’re struggling to get control of your finances, it’s an absolute necessity figure out how to build an emergency fund. That’s because you need to stop using credit cards. You’re in debt now because you used credit cards. They aren’t a solution, they’re a problem.

“Do what you’ve always done, get what you always got.”

If you want your finances to be different. You need to change something.

You tried using credit cards. Credit cards brought you nothing but debt and “junk” filling up your house.  So, now we’re going to change that. No more credit cards. Ever.

Without an emergency fund, as soon as something goes wrong in your budget (which it will frequently), you’ll go right back to the credit card.

Let me be perfectly clear. If you’re in debt, you must stop using credit cards. You will never dig yourself out of this mess without ditching the credit cards. You are not the exception to the rule. You are the statistic.

If there’s one thing I can promise you that will happen, it is that you will go over budget. If you’re new to this, you will go over budget frequently. You need to be prepared and know exactly what to do when that happens. BEFORE it happens. You can find your game plan for that here.

You also need to have money set aside so that when life doesn’t go as planned, you have options other than the credit card. Hence, the emergency fund.

The secret to actually creating and keeping your emergency fund is to feel “poor”, even when you have money.

You and I, we got into debt because we spent what we had, plus a little extra. Sometimes, a lot extra. 76% of Americans today are living paycheck to paycheck (Source: CNN). That means that 76% of us have no idea what would happen if we had a true emergency and had to come up with a lot of money quickly.

While my own finances don’t keep me up at night any longer, that statistic does. That 76% consists of parents whose babies are counting on them and whose children are learning from them. They’re men and women who have worked their whole life and have nothing to show for it except Vera Bradley bags and Ikea furniture.

I know how scared they must be, and how much they want to change but they don’t know how.

Here’s the secret. Life will never be predictable. Ever. That’s okay, we can handle that if we think ahead.

Why you spend your emergency fund:

Most people can’t figure out how to build an emergency fund because they’re used to living paycheck to paycheck. .

They’re totally ok with a checking account that has $100 in it until the next payday. They’re used to it.  When they get extra money, it makes sense to spend it. They earned it, they deserve it. I know exactly how that feels, because that was me.

We can’t change the way you feel about that. Your views on money were set in stone long before you met me and they won’t change without a strong motivating factor (usually fear). Even if you swear right now and commit yourself to saving your extra money into an emergency fund, you won’t do it.

Right now, you’re committed to this because you’re reading this. In a week or two, when you have extra money, and your friends ask you to go to the movies.. You’ll think “I can probably swing that”… and so on, and so on.

This is why you’re poor.

There is nothing wrong with you. This thought process is normal and doesn’t define you. But you need to accept this about yourself.

You will not change your life with a sudden burst of discipline. You will change your financial future by knowing your weaknesses and then working around them.

How to not spend your emergency fund:

You’re going to pay your emergency fund like it’s a bill. It’s non negotiable. Sit down right now, and open up a “hard to access” savings account. My favorite ones, are online banks (make sure it’s an FDIC insured bank obviously) like Capital One 360 Savings, where it will take you time to transfer the money to your regular account.

You’re going to set a date on your calendar and auto pay a certain amount every month to that checking account. Then you’re not going to think about it in the slightest. If an emergency happens, you’re going to do you best to handle it within your budget. I want the emergency fund to be a last resort, just like your credit cards used to be.

What happens in an emergency?

I want the emergency fund to be a last resort, just like your credit cards used to be.

Is there a way that you can make extra money this month to take care of that emergency? When we were in that situation, we would go through and declutter the house and sell anything we weren’t using. We rolled change, we did extra tests at User Testing (they pay $10 for a 15 minute test).

Does your work have overtime available? Can you pick up a side job? Look for those solutions first.

Can you reduce your spending in a budget category and use the savings to handle the emergency? Reducing your grocery budget is the easiest place to make up the extra money, but can be the hardest if you aren’t organized yet.

If all of those won’t cover it, then I want you to sit down and think long and hard if this is an emergency. I’ve heard of a lot of “emergencies” that aren’t emergencies.

Here’s a few examples:

  • We’re supposed to go on vacation with friends.
  • I promised my daughter a laptop.
  • We need to buy Christmas presents.
  • Wedding expenses
  • Bridesmaid expenses

What will happen if you don’t pay for this? Are you afraid to disappoint friends and family? If they were truly friends and family, they would want you to get your money under control. If they’re upset at you… you haven’t lost a friend, you’ve just gained clarity. If it’s definitely an emergency, then go ahead and use your emergency fund.

What if even my emergency fund won’t cover it?

If you’re 100% certain that it’s an emergency (feel free to email me if you aren’t sure… I’ll tell you!), then use the emergency fund, reduce your budget, make as much money as you can and see if the company you need to pay will work out a payment plan. If they won’t take a payment plan and this absolutely can not wait… Do what you need to do and mitigate the damages as much as possible.

How much should I have in my emergency fund?

$1,000 is pretty standard (thanks to financial guru Dave Ramsey), but some people may need more than that. $1,000 was plenty for us, but you may need more.

A friend’s family has 2 teenagers, a very old house and they are going through a divorce and child custody battle. The potential for financial disaster and really expensive emergencies with them are extremely high. For them, they would need to aim closer to $5,000 to have the same amount of peace that we had with $1,000. In fact, they saved $1,000 and had the top floor of their house cave in and then got an unexpected $2,000 bill from an attorney.

Start with $1,000 but if you have a situation that could get expensive, I want you to aim a little higher.

What if this plan didn’t work?

Then you need to distance yourself from the money even more. Talk to your employer about direct depositing a percentage of your paycheck in the savings account. That way you never even see it. You’ll adjust to the new paychecks and move on.

I know this doesn’t sound fun, but the things that this will bring you are so worth it. Once you have your money under control there are no limits to what you can have or achieve. If you want to spend a month backpacking through Europe, you can. If you want to have a lake house, you can. This won’t be easy. It will be worth it.

You can do this. I can help.

 

How long do you think it will take you to get your emergency fund in place?

FTC Disclosure of Material Connection: In order for us to maintain this website, some of the links in the post above may be affiliate links. Regardless, we only recommend products or services we use personally and/or believe will add value to readers.

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FTC Disclosure of Material Connection: In order for us to maintain this website, some of the links in the post above may be affiliate links. Regardless, we only recommend products or services we use personally and/or believe will add value to readers

Filed Under: Budget, Budget Basics, Save Money Tagged With: budget, Save Money

Comments

  1. Claude Lessard says

    April 16 at 1:46 am

    Thank you for sharing. It’s very useful. Hope to hear more from you.
    Claude Lessard recently posted…Le calculateur hypothèqueMy Profile

    Reply
  2. Corrine says

    August 31 at 9:45 am

    This all sounds reasonable, I have never tried a budge the worked before, I am willing to give this a try. I need to do something different, I am tired of worrying about what to do about my finances.

    Reply
  3. Christine Wilcutt says

    December 4 at 2:12 pm

    I have been transferring money automatically into an emergency account but I am a widow living on a small pension and soc. sec. which is paid monthly so the fund doesn’t build up quickly. It seems every time I get going something happens. First my grandson who has no insurance injured his back and had to have a $4000 procedure. Now my old AC unit is gone and will have to be replaced. I don’t want to use that stupid credit card ever again but need to get that EFund up to at least $5000. I have cut cable, hair color, cleaning products, groceries and needless to say I pray a lot. At 70 I am in good health except for very bad knees but I stay away from doctors and just try to stay in good health to save money. My only debt is mortgage and the credit card. Any ideas?

    Reply
    • Dea says

      December 22 at 5:53 pm

      I am your age so I think about this a lot. You could consider a reverse mortgage to get equity out of your home. I can’t because not much equity there. Consider selling home to get out from under property taxes and insurance and having to replace appliances, roof, etc. Can your grandson begin to repay you? Can you get a part time job? At our age you shoud be able to enjoy life and feel secure. I will pray that you stay healthy and that this financial burden will be lifted.

      Reply
  4. Melissa@mymochamoney.com says

    February 22 at 6:24 am

    I’m a Dave Ramsey fan too! Since following him, we’ve paid off about $48,000 in debt. Great article and a good reminder not to use credit cards!

    Reply
    • The Busy Budgeter says

      February 22 at 3:16 pm

      Wow, congratulations Melissa! That’s amazing. Thank you for sharing your success!

      Reply
  5. Michael says

    March 24 at 3:36 pm

    Might want to update your article. Dave Ramsey says you should have $1,000 in a STARTER emergency fund. That’s just until you get out of debt. Once you’re out of debt he (and most financial experts) recommend building that up to 3-6 months of expenses. $1,000 is NOT enough for a permanent emergency fund.

    Reply
  6. Carolyn says

    March 18 at 9:44 am

    I did the start up emergency that dave ramsey states you should have and i am building it up… I have a 5 year old and we had intense amounts of money going towards our house. Broken pipe in the bathroom thank you NYC for frozen super winters. Anyway i have over 2.5k in my emergency fund right now and i continue to add more and more. There is an app called 52 week challenge and it reminds you how much you want to safe in 52 weeks i did 8 dollars and i am above of where i should be 🙂 i am very frugal i dont spent my money just willy nilly i make sure that that is something i really need. Besides food i can very well live without a lot of things. In the beginning when i started the EF i had to touch it a couple of times but there was a day where i thought to myself i have to stop going to my savings because otherwise savings are not savings anymore and its just stashed away money. I changed the way i thought and i have saved so much and i used to live paycheck to paycheck. I also dont buy new i try to see if i can fix the items myself that break or go shopping second hand. I also pay my savings the 52 week challenge tgat reminds you i take two of them and have them automatically transfered from my checking to my savings on payday. So that money is gone and i dont see it. I dont lend ppl money and hospital bills can be paid in installments to the hospital. I understand people wabt to help their families but are those families there when you need it? Everyone has a story it all depends on how much you really want it. I dont want to live paycheck to paycheck i want to have a nice life and enjoy my paychecks but until then i cant be very productive to other people when i dont watch out for myself.

    Reply
  7. Viettokuda says

    November 13 at 1:49 am

    Your article is very good. thank you…!
    shooting games that are for free

    Reply
  8. Ronald says

    December 16 at 2:09 am

    Article has excellent suggestion for having an emergency fund and why you need one. I would
    spend my Federal Income Tax Refund as if it was “free money”…not any longer. I have saved tax
    refund for 3 years and now my “emergency fund” is over $3,000. Pay yourself first!

    Reply

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