Close your eyes for a moment. Okay, now imagine… wait, open your eyes. Great, now you can't read this.
Have your eyes open yet? Good. Now imagine with your eyes open that all of the sudden you received a medical bill for $2,000 in the mail. Does panic set in? Feel like foaming at the mouth? Want to run away to Fiji?
If you just freaked out, you probably don't have an emergency fund.
It's a scary thought to be without an emergency fund, especially when you're honest with yourself about the dangers of living on this planet. No worries! I'm going to teach you how to build your fully funded emergency fund in less than a year. We did it, and you can too!
How To Build That Emergency Fund – Fast!
Okay, here are a few tips on how you can expedite the process of building an emergency fund. Not all of these tips will apply to your situation, but take what you can!
1. Get rid of your non-mortgage debt first.
Before you get intense about building your fully funded emergency fund, you might want to think about getting rid of your non-mortgage debt first. Why? This will give you more cash-flow enabling you to bust out your emergency fund in no time.
Think about it. If you're like many Americans, you have a car payment and perhaps some credit card debt. Those payments are tying your hands from making any real progress on building your emergency fund. Just imagine how much money you could put toward your fully funded emergency fund when you aren't making payments – no more interest!
Dave Ramsey suggests keeping $1,000 in your beginner emergency fund before paying off your non-mortgage debt, then moving on to building your fully funded emergency fund.
2. Keep your expenses at a minimum.
If you want to build your emergency fund fast, you're going to need to keep your lifestyle under control. Ask yourself what you really need, and do away with the wants.
When we were building our emergency fund, we lived without cable television. After we built our emergency fund, we were so used to living without it, we got Netflix on our computer instead! Think about how much money we're saving every year!
Remember, now's not the time to raise your expenses. You want to be spending significantly less than you're making in order to build your rainy day fund in less than a year.
3. Stop investing. Temporarily!
When you have focused intensity toward one goal, you get more progress out of your hard work. Doing multiple things at once can be financial suicide!
That's why I suggest stopping all your investing temporarily while you build your emergency fund. After all, if an emergency happens, what are you going to do? Pull from your 401k? You don't even want to know about the fees and taxes associated there!
Focus all your financial energy (everything beyond budgeting for the essentials) on your emergency fund. You'll be glad you did.
4. Sell stuff.
Some of you out there could live with one car instead of two. Some of you have a stereo speaker system that would destroy every drinking glass in your home if used at full power – you could live without that. Maybe you need to move down in house to have enough wiggle room to build your emergency fund.
Whatever your situation, find big ticket items that you can sell. Then, move on to the smaller things – they all add up!
5. Give extra money to your emergency fund!
You know that sweet check you got from grandpa so-and-so? Maybe instead of spending it on a new wardrobe, you could put it into your emergency fund. This will really help you get off the ground!
You Can Do It! Here's The Math.
You might be saying, “Well that's lovely, but can I really do all this mathematically?”
Good question. Let's say you make $50,000 a year and spend $40,000 a year on necessities. You're shooting for an emergency fund for 3 to 6 months worth of expenses (that's what Dave Ramsey would recommend), so that means you'll need somewhere between $10,000 and $20,000 in your emergency fund.
By taking the extra $10,000 per year you make and throwing it into an emergency fund account (like ING Direct), you've reached your goal in a year's time! Now just imagine if you put all your extra money from unexpected sources into your emergency fund. Also imagine you sold some stuff you really don't need. You'll be getting closer to 6 months worth of expenses! Amazing!
See, you can do it! Now just go out and do it!
Share with us your emergency fund success stories and ask questions in the comments below!