Now that you know what an emergency fund is and why you need one, the next (and hardest) step is to actually save for an emergency fund.
You'll want to quickly pull together an amount of money (like $1,000) so that you have enough money for most emergencies that come your way that could ruin your budget (like a car repair or trip to the ER).
How to Quickly Save a $1,000 Emergency Fund:
- Sell Your Stuff – Gather all the stuff around your house that you don't use anymore and hold a huge garage sale. For more expensive items, you could try listing them on Craiglist or Ebay. Take all the money that you earn from selling your stuff and add it to your emergency fun.
- Save Your Change – Every time you break a dollar bill, put the change in a jar as savings. At the end of the month, roll up the change and deposit it in your bank account.
- Eat from Your Pantry and Freezer – To cut down on food expenses and quickly save money, shop your freezer and pantry first and use up all the food that you already have. You'll likely need to get creative, but you'll likely save a lot of money on groceries.
- Start a Spending Freeze – Put a freeze on all extra spending for a month only buying the essentials (like food, gas, etc.)
- Eat at Home – How much money are you spending on going out to eat. Decide that you're going to stay home for all meals for a month (and then stick to it).
- Get a Second Job – If your income is low and you are already at a bare-bones budget and just barely squeaking by, maybe you could pick up some extra hours or a second job on the side to earn some extra money for your emergency fund.
How to Save 3 to 6 Months worth of Expenses in Your Emergency Fund:
- Decide how much extra money you can save each month, and add your emergency fund as a line item in your budget (and then actually transfer the money each month).
- Sacrifice for a Period of Time – if you don't have a lot of wiggle room in your budget to add to your emergency fund, find something non-essential (like eating out, cable TV, etc) to cut out of your spending for a period of time while your build the emergency fund. You can always add those items back later once your emergency fund is complete.
- Create a Separate Account for your Emergency Fund – You'll want to keep your emergency fund out of your checking account where it can be easy to accidentally spend it. It's even better if you have your account set to automatically transfer money from checking to your emergency fund each month so you don't have to decide whether to do it or not. We keep ours in a separate money market account.
- Remind Yourself of the Goal – Saving a large amount of money can be difficult, especially if you need to stay self-disciplined for a large amount of time. You'll need to remind yourself (and your family) of the goal – which is really financial security.
One final point: when you need to pull money from your emergency fund for a true emergency, make sure that you start saving again to build your fund back up so that it's fully funded again.