What would you do if you received an unexpected bill in the mail for $1000? Or you find out that your Great Aunt Maude is really sick and you absolutely must fly across the country to be with your cousin Becky at this time? Or your car breaks down and it’s going to cost you hundreds of dollars to get it back on the road… do you have an emergency fund to pay for this?
If you said no, you’re not alone. For many people, just reading this gives them anxiety. But with around 60% of Americans not being able to come up with $1000 for an emergency should it arise, there are many people out there who face this as their reality.
We hear over and over again that we need to have an emergency fund, but what is that? And how on earth do you build up an emergency fund fast if you’re starting from scratch?
What Is An Emergency Fund
First of all, it’s important to understand what an emergency fund is.
Your emergency fund is a separate account that contains enough money in it to get you out of a difficult situation. This amount is different for most people, but the amount that is widely used is $1000 because that will generally cover most emergency expenses.
This account is not linked to any other account, it’s not your spendings account and it’s not your savings account. It sits there, all on its own, and is only to be used in emergencies.
For some people, they like to have more money in their account, and usually, once someone has paid off all their debt, they will work towards building their emergency fund to be able to cover a few months, or years worth of living expenses.
What An Emergency Fund IS NOT
While it’s good to know what an emergency fund is for, it’s also important to know what an emergency fund is NOT.
An emergency fund is NOT:
- For use when there’s a really good sale on
- For when you forgot your Mother’s birthday
- To top up your spending money
- For a holiday
- Your Credit Card
Just to really reiterate that last point – an emergency fund is not your credit card. I hear so many people say they have a credit card ‘in case of an emergency’ but that is not what a credit card is for. That’s what an emergency account is for.
Not to mention that a large number of people who have a credit card ‘for an emergency’ often have their credit card maxed out so if there was an emergency, they don’t even have enough money on their credit card to cover it!
If you are telling yourself your credit card is your emergency account, stop it right now!
Why Do You Need An Emergency Fund
It’s pretty simple really, it’s for emergencies.
While it’s good to be able to plan ahead with our finances, it’s not always possible to foresee all of the expenses.
Medical emergencies and cars breaking down are two of the more common financial emergencies that we just cannot foresee, but we can plan for them.
An emergency fund allows you to stress less because you know that if something were to happen, you have the money sitting there ready to go and you can cover just about any emergency expense thrown your way. It is actually very liberating and empowering to have.
How To Quickly Build Up Your Emergency Fund
So now we know you need an emergency fund, the next step is to actually build one up. We always recommend building up your emergency fund as fast as you can, because once you’ve got it, it’s there and you can move onto your next financial goal.
Here are some ways you can build up your emergency fund quickly:
1 – Sell Unwanted Items
There is so much money to be made from the clutter we have in our homes. If you haven’t Marie Kondo’ed your house within an inch of it’s life, you can sell your unwated (and in good condition) items on your local Facebook Buy, Swap and Sell groups for a good amount of money.
I made over $2000 in one month from doing this and it is a fantastic way to build up your emergency fund super fast!
Take a look around your home. What do you have that you no longer need? Check out your local sales pages and see what is selling and get ideas for what you could sell (and how much you could sell it for).
2 – Use ‘Round Up’ At Your Bank
Some banks offer the ability to ’round up’ your purchases to the nearest dollar or five dollars and move the difference into a savings account.
So, what happens is: you purchase your coffee for $6 (because coffee in Australia is expensive), and swipe your card. Your bank takes $10 out of your account, pays the coffee shop $6 and puts the other $4 into your nominated savings account.
It may sound like small amounts of change but we can easily save $100 a month doing this. Add that to other methods of building up an emergency fund and it all adds up very quickly.
3 – Automate Your Savings
Automation makes savings SO MUCH easier. While you’re working towards building your emergency fund, set your accounts up to move a set amount of money to your emergency fund every single week. It can be as little or as much as you’d like, the point is that you set it up to happen automatically so you don’t have to think about it or do it yourself.
Chances are you might not even ‘miss’ the money that is gone, espeicially if you set it up to go as soon as you’ve been paid.
Even better, request your employer to split your pay into two separate accounts. Some employers will allow you to nominate how much you pay into each account. You may be able to set up $100 to automatically go into your emergency fund each pay cycle so you don’t even see that money and it all happens on autopilot for you.
4 – Have a ‘No Spend’ Month
No spend months are a fantastic way to build up your emergency account really fast.
You can make your own rules for your ‘no spend’ month. Some of the ways I like to cut down is by having very lean grocery shopping weeks where we ‘shop our cupboard’ and create as many meals as possible from what we already have – then we move the money we would have spent on groceries into the emergency fund.
You could also avoid spending money on things like take away coffee or lunch dates, and when you find yourself avoiding them, move the money you would have spent into your emergency fund and watch it build up very quickly!
5 – Hustle
If you’re a little creative and a little motivated there are heaps of ways you can make some extra money and hustle.
The easiest and first place to go is your current job. Can you work a little extra overtime or are there other shifts you can do to earn some extra money? Let your boss know you’re looking for some extra work so if something comes up they can let you know.
Next, check out your current skills – what can you offer as a service in exchange for payment? Are you a graphic designer who can take on some freelance work? Or are you an amazing photographer who can offer some great packages? Or maybe you love dogs and would love to walk dogs or dog sit?
There are SO MANY things you can do. If you’re lacking inspiration or not sure where to start, check out AirTasker and look for tasks in your area that people are willing to pay to have done.
Building up your emergency fund is so important and should be a priority for anyone who hasn’t already got one. It doesn’t have to take a long time to do and you can build up an emergency fund fast if you’re motivated enough to do it.