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If you are just starting out on your journey to becoming debt-free, you’ve hopefully realized that you should have some money saved on the side “in case of emergency”. I mean, the last thing you need when you’re trying to climb out of debt is accumulation of another debt! One of the BEST decisions you can make for yourself when trying to pay off debt is to establish a safety net. This is your cushion for unexpected expenses that would normally force you into the red again. Except this time, you’re PREPARED! Keep reading to learn more about saving an Emergency Fund and how to do it in 3 months or less.
For purposes of this post, I’ll point out that the magic number when first building your emergency fund is $1,000. As you’re debt decreases over time, you can increase your emergency fund to fit your needs. But for now, your focus should be to get a solid 1k in the bank BEFORE you start paying off your debt.
The next thing you should determine up-front is what constitutes an emergency. The water heater breaking is an emergency. Paying your ER bill for your son’s broken arm is an emergency. Making sure your kids have the latest Nike tennis shoes is not an emergency. When working yourself out of debt, these are the decisions you have to make. By thinking this through ahead of time, there will be less headaches and disagreements when the emergencies actually arise.
Now to start saving your emergency fund. There are two ways to accomplish this – spend less money, and/or make more money.
It sounds easy; just cut back and don’t spend as much. Trust me, this is a lot harder than it seems. If you want to successfully spend less money, you need to be intentional about where you’re going to cut spending. The first thing to do is figure out where your money is currently going. Do this by writing down a reverse budget. This is different from a traditional budget in that you’re assessing where every dollar of your income is going at this current time. Write down all your bills, monthly expenses, recurring payments and things like groceries and gas that may fluctuate a little. This is hard, because right now you probably aren’t thinking about the little day-to-day purchases (daily latte, lunch 2-3 times/week, those shoes that were too cute to pass up..). The truth is, these are the things that are ruining your ability to save. Once we started paying attention to all the “little things”, it was eye opening how much money we were just throwing away! Here are the main things you should and NEED cut out in order to get your emergency fund set.
Let’s be honest, you can sacrifice and take your own coffee to work if it means saving another $15-20 per week!
I hear you, it’s hard to meal prep and plan ahead. But you have a goal here, and you can save BIG money by bringing your own lunch to work. Make extra food on the weekends, cook two lasagna’s instead of one.. get used to leftovers. They are your new bestfriend.
You are probably easily spending $50 to$150 per month for your gym or Crossfit membership. This is not okay when you’re trying to save money. There are so many other ways to get in a good workout. I mean, you can buy your own dumbbell set with the money you’d save after a few months. Even if you can’t stand to give up the comradery of your local gym, at least consider pausing it until your goals are in-line.
This one can save you HUGE money. Think about how much you really spend each time you take the family out to eat.$50, maybe $80? And you go out, conservatively, 2-3 times per month? STOP! Plan an outdoor picnic at the park, grill out and eat supper on the patio, it doesn’t really matter.. just stay home for dinner!
While many of us argue that “looking good is a necessity”, spending $60+ every 2-4 weeks on our manicure is a little ridiculous when we’re already rolling in debt. Even if you invested in your own gel manicure kit, you’d be saving boat loads of money! For the sake of our budget and family, we can do without the expensive manicures for a while.
We were spending an ungodly amount of money every month on our cable bill. No matter what deal we signed up for, eventually our bill always kept getting higher and higher. We finally decided this was killing our ability to save and decided to ditch cable all together. We opted to only use Netflix for $10.99/month. It took some getting used to, but we were saving so much money that we didn’t even care. Honestly, we can probably all use less screen time in our lives anyway.
These are just a few ways that we were able to spend less. Your spending and budget may look different, but I promise you can find ways to cut back.
This was a little more difficult for us and takes slightly more effort to accomplish. Rather than just eliminating things you already spend money on, you need to find ways to increase your income and hence increase your savings. We all know that time is precious, but time is also money. Any extra hours you can spare on weekends or weeknights after the kids are in bed can be spent hustling to make some extra cash. I have a whole article on Side Hustles that Actually Work, where you can learn some specific side-jobs that work for me.
There are tons of online platforms that are perfect for supplying a part-time income, and usually require selling a good or service in exchange for cash. Poshmark specialized in selling new and used clothing at a discount from people like you and me. Etsy’s platform is based on crafters and designers selling homemade goods, décor and gifts. Ebay has transformed into a sell-almost-anything marketplace where items can be sold auction-style or for set prices.
Skillshare is a platform that I don’t personally have experience with, but if you have expertise in a certain area, this could be perfect for you. Skillshare allows people of all backgrounds and knowledge who are experts on a subject to post online video courses and make passive money when people watch it. You earn money based on how many minutes of your course is watched, and once you pre-record it there is no extra work on your part. Another way to sell your services is to do yard work or housecleaning on the weekends. Maybe there are people in your neighborhood that need their dogs walked. You never know until you ask! Be creative and think about what you can offer.
Saving up your Emergency Fund may seem like a step back to you. Why are you stashing this money in the bank when you could be paying down your debt? Remember, one of the reasons you likely accumulated debt is because you didn’t plan ahead. Now is the time to change that. You have the chance todo things differently, and that starts with being prepared for the unknown. It may not click until that first “emergency” situation happens, but you will be so grateful for that $1,000 cushion and suddenly it will all make sense. Do yourself (and you family) a favor and devote all your efforts to getting your Emergency Fund established in the next few months. YOU WON’T REGRET IT!
March 18, 2016