As you read through some of my posts, you will notice that I often refer to the “levels of your financial house” If you have not had the chance, scan through the “recent posts” for the post on that very topic (financial house) and familiarize yourself with that concept. Back the matter at hand, building an emergency fund.
The emergency fund is the second level of your financial home that needs to be put in place. What’s an emergency fund? Its an account, typically a savings account in the bank, where you keep a certain amount of money, a liquid asset, to cover “emergencies” as they may arise. How much should be in this account? The recommendation is to have anywhere from one to three month’s gross income in this account. Example: If your monthly gross income as an individual is $3,000, then your minimum emergency balance should be $3,000 and a possible max of $9,000. If you’re married, you would simply double those figures.
Why is this the second level? As you move up to higher levels of your financial home, its important not to have to jump a level in order to cover an expense. Doing so will weaken the overall structure of the financial home and possibly cause a collapse. The goal is to avoid pulling money from other sources (retirement accounts or children education account) to cover short-term emergencies.
The following are just a few examples of how to build an emergency fund.
Reduce your monthly expenses
Sounds simple enough but much harder to put into practice. This is why a sub-step to this process has to be organizing yourself and tracking what are your monthly expenses. Utilizing my FREE Debt Tracker is a great step in the right direction. Understanding how quickly money can be spent is critical. Scan you account for monthly subscriptions and memberships that drain your account like a ninja. Establish a savings account if you already haven’t done so. Begin the habit of paying yourself first. Every time you get paid, transfer money into the savings account. It can start with as little as $5. The habit of setting aside the money is more important than that actual amount.
Sell items online
A great way to give your emergency fund a startup boost is to sell some of your belongings online. Do a spring cleaning to gather some stuff. You’ll be amazed at what people are willing to pay money for online. Old electronics, framed art, collectible trading cards, toys and comic books are just some examples of what you could post on “ebay” or “offer up” and make some extra cash which in turn you would pay yourself and place the earnings in your newly formed “emergency account”.
Save all “surprise” income
Another excellent startup source for an emergency fund is surprise cash. Birthdays, Christmas, bonuses at work, refunds of purchases again will work. Collecting the loose change in your car or around the house are some additional examples for jump starting your emergency fund.
Make more money
Do you have a particular skill that you could utilize to earn some additional income? Side hustles are a great way to not only fund an emergency account, but to fund other levels of your financial house. There are numerous opportunities available where you can start part-time, work from home and earn much needed additional income.
These are just few examples on how to establish a very necessary emergency fund. If you are interested in learning more about how I earn additional income, please check out my post under “business opportunity” or email me at Louis@louisromero.com