How to build an emergency fund
Posted by admin on April 30, 2009
A lot of my posts are investment related, but we all have to have money to invest in the first place. With that said I sat down and tried to think of how I have been able to save money and why you need to save money.
The rule of thumb for an emergency fund is to have 6 to 12 months of income set aside for emergencies. Arguably most of us in America have lost their job (the largest non-health related emergency) over the last year. The question is how do you save this much?
One of the best reasons for an emergency fund is so that you do not have to use credit cards and rack up debt when an unforeseen expense occurs. If you have debt and you just want a base amount to get you buy and keep you from adding to your debt you only need $500 to $1,000 as opposed to the 6 months advised. You can work up to six months savings after you have paid off all of your debt.
I wanted to look at ways I save money on a daily basis that may help someone else.
Take your lunch to work at least 4 days a week You can go out to eat one day a week, and even better depending on your diet you can take things that are much cheaper than going out.
One of my favorite lunches is two hot dogs using bread as the bun. The average cost for a hot dog made this way is $.25. So I can eat lunch for $.50 and either brew tea provided by my work or drink water. Do the math and if I take this for a week I can eat for $2.50 for a week (I don’t waste gas driving out at lunch either).
Save your change I have been emptying my silver change into one jar and my pennies into another since I was in high school. I normally can save $150 every year by saving my change nightly.
Use Coupons My wife and I agree on coupons, but our intensity differs. I try to follow the Coupon Mom’s system and can normally save about $40 per month between coupons and difference from purchase price per month. We could do a little better, but I don’t do the grocery shopping.
Recycle materials I admit it I recycle aluminum cans. I don’t put any work into it and I only recycle cans that my family and I drink. I take them to the recycler on Earth day because most of the recyclers here pay double on Earth Day. I don’t save much this way, but I made about $40 this year.
Reduce your monthly bills I cut my DSL speed down one level and save $5 per month. I reduced the size of my storage unit to the next smallest size and reduced my monthly bill by $20 per month.
Go to restaurants only on certain nights I have two children and we have a list of restaurants where children eat for a reduced rate or free each day of the week. This will normally cut our restaurant bill by 35%.
Budget an Emergency fund expense I have added a line item to my budget where I put $50 per month into my savings account where my emergency fund is housed.
Put Expense checks into your emergency fund I just returned from a business trip that I was reimbursed for and paid for the airfare and hotel on my credit cards and my meals with cash. I received the rewards for the purchases on my credit cards, and then paid the card off with my reimbursement check. The reimbursement for my meals went straight into my emergency fund.
Use the library to read books and get music If you can wait a couple of months the public library has music CD’s you can check out. Check out a CD and bring it home and burn a copy to your MP3 player.
Move your thermostat Up in the summer 2 degrees and down in the winter and you can save between 10%-20% on your energy bills.
