How to start an emergency fund when money is tight

When money is tight, an emergency fund is even more important. Here are some strategies to get you to put something, anything, away.

You need an emergency fund.

An emergency fund is not savings. You need that too, but that’s a different thing.

You need an emergency fund for lots of reasons, but the biggest one, in my opinion, is peace of mind.

Yes, the emergency fund is for paying for purchases that have the three Us, and it’s fantastic when you have that money, but it’s more than that. The emergency fund can help you feel less anxious every single day.

When I had built up enough money to be able to survive for even three months without income, it was as if a “relief switch” had flipped inside me. I felt better every day.

But let’s not get ahead of ourselves. Before you can get your six months of living expenses (which is what I recommend everyone have), you need to start from nothing.

That’s where I want to meet you today. Because if your situation is such that the idea of getting any amount of money put away seems unachievable, then we need to start small.

Because doing something, even something small, is better than doing nothing at all.

Debt vs. emergency fund

As I’ve spoken about before, it doesn’t make sense to build up a large emergency fund when you have an equally large amount of debt.

Forget mortgages here, I’m talking about student loans and credit cards. Why stockpile a bunch of money when you’re paying interest on something you owe?

But if you wait for you to have any emergency money until you’ve paid everything off, there’s a good chance that you’re going to have an emergency between now and then!

Clearly, there’s got to be a middle ground here.

Middle ground

Put simply, I want you to have something put away for emergencies, no matter where you are in your financial journey, and no matter how much money you make, no matter how much debt you have.

(Okay, if you’re currently dealing with an emergency, or don’t have any income, then come back later when that’s passed. This is for the rest of you.)

I’d say that a good amount to have here to start is $500 to $1,000. This is non-scientific, but I come to this for two reasons:

  1. All of those interchangeable surveys that say something like “X% of Americans couldn’t have enough money to pay an unexpected expense“, those numbers are usually in the $300-$500 range. This allows you to go a little over that.
  2. Most of my emergencies in my life have been in the hundreds-of-dollars ballpark.

When a little feels like too much

If $1,000 seems doable for you, then go for it. For many people, $1,000 is doable quickly, maybe even instantly if you have some savings already.

For others with a more limited financial outlay, $500 is more realistic.

But I know that there are some people for whom amassing $500 is tantamount to landing on the moon, so unattainable as to be almost ludicrous.

For you, don’t lose heart. I have some suggestions.

The first thing to note is that something is better than nothing. So even if $500 is crazy to you, the answer isn’t to just throw up your hands up and say that you can’t save anything. What can you do?

Put something away every month

Many people get paid on a monthly, or semi-monthly basis. And even if you don’t, bills are often due on a monthly basis.

So, commit to putting something away, anything, each month.

How about $20? If you can put $20 a month away, then it’ll only take you about two years to get $500.

But it won’t take two years for you to start reaping the benefits of an emergency fund. It’ll take you less than half a year to get to $100. Then, when you have a $100 emergency, you’re covered!

Put something away every paycheck

Maybe the monthly schedule doesn’t work for your life. That’s okay too.

If you get a paycheck, then commit to putting away something, anything, with every paycheck.

Again, choose the amount that works for you. Anything will eventually add up.

Put something away every week

Maybe your life is being lived in the short term. That’s still okay.

Make a weekly goal: put away $5 a week. You can do $5, can’t you? Why don’t you give it a try and see?

Because while it may not seem like it, $5 a week is effectively the same as $20 a month.

Be consistent

I know that when you have a tight budget, consistency may be hard. You may be responding to life’s challenges all the time, and that may throw you off kilter.

But that’s why it’s important to be consistent if you can. I love time-based savings (every month, every week), because you can automate that using your bank or savings account.

But even you don’t use an online bank or savings account, even if you’re 100% analog, you can remember to put $5 in an envelope every Saturday, or $20 in a drawer on the 1st of every month. Consistency is what helps people succeed.

Getting an emergency fund together, of any size, no matter how small, is crucial to your financial success. If you don’t have an emergency fund and an emergency happens, what’s going to happen? The best case scenario is that it goes right on a credit card, and that isn’t a very good best case.

But if you start today, putting a little bit of money away as you can, before you know it, you’ll have yourself a little emergency fund, and a little bit of respite from financial anxiety. Trust me on this.

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