Emergency funds, are not for vacations, clothes, or that perfect purse you saw at the mall. They are for the roller coaster of life, that hits us all at one time or another.
No one likes to think of the downside of the roller coaster, such as illness, job loss, and broken cars.. Emergency funds tend to conjure of visions of "bad things" but it can happen.
Along with our budgets, we need to be putting away a little bit of each pay, or some of your tax return, or shaving your budget. But if you say "how do I save money on my tight budget" one dollar at a time.. I know that sounds simple, but once you get started, and you open a special savings account just for your emergencies, you will get the ball rolling and find other ways to add to it. Just getting started is the hard part.
You can have two savings accounts. One for the things in life you want and are saving for, such as that special vacation or a down payment on a house, or that perfect purse at the mall. The other one, will be for emergencies. You could earmark some of your savings each pay for the emergency account, you can even have your bank set it up to transfer to the two accounts.
Once you put money in your emergency fund, you can forget about it, this way you are not tempted. Most financial guru's will tell you, that you need six months worth of expenses in your emergency fund. While this is in the perfect world, it can be hard to do, but if you put away on a regular basis, you can at least be able to cover such expenses as unexpected car breakdowns etc. Job loss would be the worst case scenario, but anything you have in your emergency fund can and will help.
There will be that much less on your credit cards. If you come into a windfall, or you get a tax return, or you get a raise, you can split it between your two savings accounts.
Studies show, it can take up to four months to look for, find, and get started in a new job, so if your job does not feel secure, then you may need to make your emergency fund your priority over any other types of savings. This is especially true if you are self employed or a seasonal worker. This emergency fund could be the difference between staying where you are, and being evicted.
Even if you have unemployment benefits from work, it can take at least a month or more before you see them. So, no one knows what is around the corner, but if you feel your job is a bit unstable, or your health needs some work, then you are going to have to tighten your belt and put something away for "just in case". Make it a bill payment just like your other bills.
If you love to eat takeout pizza, for example. Cut out one takeout per week, and that could be $20.00 per week, or $40.00 per pay. Assuming you get paid twice a month, that will be $80.00 per month. That may not be a huge emergency fund, but if your rent is $800.00, you will have that saved in 10 months. You will now be able to pay at least one month's rent in an emergency, just because you skipped a pizza night. It does add up.
If you are lucky enough to not have an emergency over those 10 months, then you will continue to add to this account, and it will accumulate. If you can boost it in the beginning, just so you have at least a month's worth of expenses, then you will be off to a good start, and you can breathe a bit easier if something comes up.
This is especially helpful, if you work at a job where you don't get paid if you call in sick. You really need to get that fund started now, if this is the case. Otherwise, you end up finding that lost pay on credit cards or lines of credit, or dragging yourself to work with a fever. Not good!
Sometimes, life can be full of small emergencies, such as your daycare won't take your child today because they have a cold, or you need to take a day for doctor's appointments, or your car needs new tires.. These can be everyday emergencies. You need to allow for them from each pay. This way you will leave your credit card alone and avoid the vicious circle of credit card debt.
So, take that first step, and go to the bank, and open that savings account, for the roller coaster of life, and then breathe!.