Imagine getting ready to go to work and turning on your car

All of a sudden, your car doesn’t turn on

You’re not sure what could be wrong

Perhaps it is a battery issue or any other thing

Deep inside you know you are not ready for this bill but do you have any other choice?

I was in the same situation as you a few years about

Although I consider myself clever as I always buy a reliable used car after doing my due diligence and reading multiple good reviews all of the sudden my muffler was completely rusted

I went to my mechanic and I had to change the whole muffler along with other minor things

I paid around $700 in cash as most small mechanic shops accept cash or check only

I thought about that moment and I was ready for it as I paid the money from my emergency fund

I don’t consider myself lucky as I saved money in what is called an emergency fund

It is a gut-wrenching feeling and it would happen to you and me

I want you to be ready embracing these moments as the new norm

That’s why I want you to be ready for this inevitable moment by building your emergency fund in less than a month

So let me start with the following

What is an emergency fund

An emergency fund is simply saved money you set aside in a personal account

It can be a bank account or a box in your home in an accessible place

How much to save in your emergency fund

The ideal amount to start with is to save $1,000 as a starting point

If your total income is less or equal to $20,000 a year then saving $500 is ideal for you

The initial $500 or $1,000 is called the baby step

This is the beginning and some families managed to move to the next step in the emergency fund plan

The next step is a little bit tough especially if you did not create a budget yet

You have to lay down all your expenses to see what to cut or eliminate

You have to manage to save around 3-6 months of expenses

Remember I mentioned expenses, not income

You need to make sure you are able to pay your mortgage/rent and bills on time

What is an emergency fund used for

The emergency fund is used for any urgent and unexpected incident you have no control of

For example, your car repairs, any urgent fix in your home that cannot stay any longer like plumbing or washing machine suddenly does not work, any dental and medical bills that are not covered by your insurance

According to Wikipedia, an emergency fund may be used in case of job loss and this is what I am always afraid of but I already planned for it

Don’t use the money to pay for a vacation trip or give yourself an excuse to pay for an occasion like inviting your family or friends for a party to celebrate let’s say your son’s graduation

You are an adult and your emergency fund should be your precious money to cover you from falling in debt

Do you really need an emergency fund

The short answer is yes, you need an emergency fund because life is and will always be changing

around you also all your belongings depreciate

Think about it this way, do you remember when was the last time you changed any of your household appliances

You can never keep track of when you will need to change any of your appliances, you can buy a fridge than lasts up to 10 years and it is still in a good shape or the other way around where you buy any appliance and it gets stuck after it passes the warranty period

Expect each year one major incident that requires to use your emergency fund

That’s why you need an emergency fund

How to build your emergency fund in less than a month

Building your emergency fund in less than a month is possible if you think positively out of the box

1. Every household has unused electronics, pictures and antiques that you can sell right away

You can really liquidate a $500 worth of cash without even noticing that you got rid of something close to you

2. You can sell new or used on so many places like Facebook Marketplace, eBay and Craiglist

I love Facebook Marketplace as sell things in your neighbourhood and get paid in cash

3. Arrange for a garage sale and deposit all the money into your emergency fund
4. Think about cutting your discretionary expenses for a short period like your daily morning coffee

I am not telling you to give it up completely but focus for a short period of time to switch what you pay for your leisure into your emergency fund

5. Donate your plasma and you will get paid from $50 to $100 instantly
6. Participate in a phone discussion from a website called Respondent where you can get paid $100 – $250 on each discussion
7. Find a part-time job and dedicate its money to your emergency fund

You can find a lot of different things you can actually do on a site like UpWork for matching your talents to those who want to pay for it

Where to keep your emergency fund

Humans are not similar to one another when it comes to temptation or determination

Some people find it hard to resist spending their emergency fund if they have easy access to

That’s why there are stories of those who did not deposit their emergency fund money in a new saving account

I heard of someone stored her emergency fund in a sealed frame where she had to smash the glass to access her money

If you are responsible and considerate then your best approach is to

1. Consider opening a saving bank account the one that gives you back the highest interest
2. Avoid putting your money in any bank account that incurs any fee if you withdraw money from it like depositing your money in CD which stands for Certificate of Deposit

How to facilitate the process of building your emergency fund

I know you got excited now to start building your emergency fund

Follow the steps below to facilitate the process of building one for you

1. Open a new saving bank account and deposit your first $1 into it

One dollar is a hypothetical amount, of course, you can transfer $20 to $40 from your checking account as a start-up step

2. Automate your saving into your emergency fund account

Any bank can automate on your payday to transfer any amount into your emergency fund account

Keep it as a habit even if you have already saved your $1,000

3. If you are in the middle of paying debt, continue building your emergency fund

Your emergency fund is the shield you can use to eliminate more debt

How long it takes to save for emergency fund

There is no specific time frame here

Nobody can advise you on how long you should spend to build up your emergency fund

I would say the emergency fund is divided into 2 steps

Step one is the baby step, you try to save $500 to $1,000

I would say you should complete it in less than a month using the suggestions listed above

You shouldn’t stop there

You have to move to the next level which is a little bit harder as you must save 3 – 6 months of your household expenses in case you lose your job

Ask yourself, are you worried because you may lose your job

Be honest to yourself as this dictates how much austerity and sternness you have to adapt in your lifestyle

Don’t think you have an exception and your company would not lay you off because your position is critical or it is hard to replace your role

Actually, a situation like COVID-19 proved to everyone who dreamed about financial security that there are no securities in life

Companies flipped a coin on whom to lay off and to keep

My brother told me that his manager told him she kept him because she knew that he moved to a new home so she decided to lay off other employees up to one-third of the staff

Anyway, the good news if you still have your job during the pandemic, it is a good chance to build your emergency fund to the maximum

What is next after building an emergency fund

Congratulation, now you managed to build your emergency fund

If you have debt, make sure your emergency fund is there to pay for any unexpected incident to keep you focused on paying your debt

If you saved your first $1,000, you completed the baby step

Don’t stop there and continue saving money to cover 3-6 months of your total expenses

Final words about an emergency fund

Financial advisers who graduated from reputable universities may not have built their emergency funds Simple things like planning for future needs discipline and will

Education does not teach you to be determined and that’s why there is no education in life that can help you get out of debt if you are not willing to cut your spending and follow frugal living tips

About the author

Sam Michael writes about saving money, budgeting, frugal living tips, possible ways to make money and how to start a successful blog – feel free to follow me on Twitter or Facebook