The number one thing I hear when speaking with family and friends about an emergency fund…
“How can I possibly save anything when I’m already living paycheck to paycheck?”
I hear you, I was there too. At the time, I had no idea what an emergency fund was. You can read my story about how I got into debt and what I’m doing to get myself out here. I used to be good about finances. In college, I had one credit card. I only used it for things I needed and always paid it off in full every month. Then, I graduated college and learned I was expecting soon after. When I finally moved out of mom’s and dad’s, while pregnant, I “needed” new couches, and a brand new television set with an entertainment center to go with it. I “needed” an awesome baby shower, fancy baby items, clothes, and the more expensive diapers (because you know, they work better). Plus, I needed a NEW car. In hindsight, I didn’t need these things, I wanted them. All of these things added up to a lot of DEBT. While I was still managing my finances okay, I could feel a bit of financial pressure.
Then baby brother came along two and a half years later. I made small attempts to save money such as breastfeeding, using cloth diapers and wipes, and I made my own baby food. While it helped, I realized that instead of actually saving, I just shuffled the money elsewhere, like Amazon, to buy more things I didn’t need.
I became worse with money over time. Managing two kids, being a wife, managing my home, and working full-time with little sleep definitely took a toll on my abilities to keep up with finances. I missed payments resulting in overdraft fees, I made more impulse purchases, and I did not budget at all.
My turning point was when I literally had $5 before next paycheck. I had to wait to buy groceries until next payday. Luckily, payday was only 4 days away and I had no automatic payments to go through before then, but the thought of not having money to buy groceries was terrifying! I hated the feeling and I knew it was time for a change.
I came across Dave Ramsey in my research and of all the financial advisors out there, he and his book actually got me excited to jump on the “get out of debt” train. He mentions baby steps, which you can read about, here.
Today, we will talk about Baby Step #1: building an emergency fund.
I will tell you how exactly how I tackled baby step #1 and how you can too.
What is an emergency fund?
An emergency fund is a set amount of money that you save for the sole purpose of emergencies. It can be referred to as your “rainy day fund”. Not having an emergency fund is what gets most people into trouble. It is your baby cushion for when, you know, life happens.
Top things that qualify as an emergency:
- Medical emergency: kid fell off monkey bars and broke his arm, use emergency fund for co-pay in ER
- Tire has a blowout: use emergency fund to replace tire
- Refrigerator stopped working: tap into emergency fund
- Washer/dryer went out: use emergency fund
- Unexpected travel expenses for marriage or death
Things that do NOT qualify as an emergency:
- Cell phone broke
- Television broke
- New stereo system for car
You get it? The point is, only use this money for when you absolutely NEED it. Spend time to SAVE for everything else.
How to get started on building your emergency fund.
Step #1: The first step in saving money, period, is to STOP SPENDING MORE MONEY! Seriously. It’s one of the hardest things to do, but definitely necessary.
Step #2: The next step crucial to start saving money and paying off debt is to understand how much debt you are actually in and writing down all of your expenses. By all expenses, I mean everything including yearly subscriptions, quarterly expenses, bimonthly and monthly expenses. Then, write down all of your steady incoming money. From there, you now have an idea of where you stand. Are you living within your means?
Tip: to make sure you capture all of your expenses, start by writing down when things are due. Break out your calendar and write things down by day. For example, if your mortgage/rent is due on the first of the month then write down your first expense under #1. If your cell phone bill is due on the 15th of the month, write that down under #15.
Step #3: Write down and examine EVERYTHING you currently spend your money on. If you solely use credit/debit cards, get those statements from the last three months. Do you use a balance checkbook? Examine those books to se where your money is going. If you have absolutely no idea, I suggest to begin tracking where your money is going for the next two to three months. You can do this by using one form of payment (like your debit card) then requesting your statements at the end of the month or you can simply write everything down as you spend it.
Now that you have an idea of where your money is going, it’s time to get serious. Take some deep thoughts about what your willing to give up in order to find extra cash to put towards your emergency fund. It takes an awful amount of willpower, especially if there is a sale. Are you willing to part with that morning Starbucks latte? How much a month will that save you? $30-45? How about that monthly mani-pedi? Do you really need that gym membership? Can you cut down on smoking? Do you really need a subscription for those magazines?
Dave Ramsey suggests cutting ALL of your credit cards to make it difficult for you to spend. I will admit that while I didn’t physically cut all of them right away, I took them out of my wallet and stored them in a drawer to make them less accessible. It worked for me. I eventually cut them all because I was so used to not using them anymore. Do what works for you.
10 Ways to make extra money for your emergency fund
Other than cutting your spending, making extra cash will always help you build that $1,000. Here is a list of ways that you can QUICKLY save extra bits of money.
- Yard Sale– sell everything you can. I have yet to do a garage sale so I’ve made my money from selling on Facebook local yard sale groups, Facebook Marketplace, and the Letgo app. I down-sized my kitchen and made $50 just from getting rid of pots and pans, utensils and gadgets. From selling my things on yard sale sites, I made an additional $300 from selling toys, electronics, and appliances from around our home.
- Work overtime at your job– ask your employer if there is any overtime available. Any little bit helps. I was able to pick up 2 extra shifts in one month and made an extra $450.
- Pick up side jobs– consider walking dogs or watching kids for a weekend or two. Watching someone’s kids for an evening out for 4 hours could make you $40 if you charge the standard rate of $10/hr. Pick up someone’s yard for a fee. Write a resume for someone. Install a fan for someone. Change someone’s oil.
- Sell craft items– are you crafty? Consider making homemade signs, body scrubs, dolls, mittens, blankets, t-shirts ect and selling them. This is something I am considering doing but have not had a chance to do yet.
- Flip small items– find items online or at garage sales, like beat up dressers. Buy them cheap, fix them up with new screws, a sanding job and some new paint and voilà! You have a newly remodeled dresser to sell for profit.
- Resell items– stock items online or in-store at locations such as Amazon, Walmart, Target, and Carters. Visit close out stores. Here is where you can find items on clearance or close-outs for super cheap. Turn around and resell that item for half of retail price. That way, you make a profit and your buyer also gets a deal. I recently found out that people actually make a living reselling items. It’s a lot of work stocking items so I can totally give those individuals credit. I’ve made $80 from doing this.
- Trade services– instead of spending $40 on a babysitter for a night out, consider asking a friend or neighbor with kids to watch them for free in exchange that you’ll do the same for them when they would like a night out.
- Pick up a temporary job– deliver pizzas at night, work in retail for the holidays, work at a library over the summer, or deliver newspaper in your spare time.
- Make tamales– Nana’s way of making extra money. Tamales sell like crazy here in Southern Arizona, especially around the holidays. Consider making food items like tamales, tortillas, homemade cookies, or even cakes if you have a talent for cooking.
- Photography– this is becoming more and more popular among people looking to make extra cash. If you have an eye for photography and lighting, get friends and family to be your Guinea pigs to build a portfolio. Then, advertise yourself all over social media and start booking those sessions!
I’ve made $880 from the list above. I was able to stash the other $120 from decreasing my spending. I really made an effort to stop eating out so much. When I examined my spending, this was where most of my mindless spending was going. I tried to cook more often and take lunch to work. It’s still a difficult thing for me to do but hey, we are human right. But by simply making a stronger effort, I noticed more money in my bank that I could stash away.
Saving money and getting out of debt is going to be more than crunching numbers. It’s going to be a lifestyle change that requires lots of determination, consistency, and discipline. It’s not easy, I will tell you that right now. If it was, everyone would be debt-free right? So, are you ready to finally get out of that hole so that you can live your life freely? Are you ready to vacation without worrying about coming home to $0 in the bank because you blew your budget? Do you want to shop without worrying if you could afford it?
Start applying these steps today and start to see that baby cushion develop!
Please comment any questions you have below. Are you familiar with Dave Ramsey and have completed baby step #1? What are ways you have saved for your rainy day fund? Are you struggling? Comment below or email me, and I will do what I can to help you.