Would you be able to cover a $200 car repair without using a credit card and going further into debt? If not, you’re not alone. Many American families can’t cover a $400 emergency without going into debt. Below I will share why it’s important to have a small emergency fund and ways to save quickly for one.
My $3,700 “Minor” Accident
I was a couple weeks away from paying off our van when a deer headed straight towards my bumper. She came out of nowhere and was running along the opposite side of the road until she saw me and decided it would be a great idea to head right towards the red moving vehicle.
I was able to slow down a bit but not avoid her. She wasn’t trying to avoid me either. She hit me head on right behind my driver side headlight. Headlight was still working but there was a good dent and scraped paint on the bumper.
The accident was “minor” but the bill from the auto shop was not. The entire bumper had to be replaced and repainted. Plus there was some back end work that had to be done like securing the headlight.
That “minor” accident was a $3,700 bill! Fortunately, thanks to insurance we only had to pay a $200 deductible.
Luckily for us as well, we had $200 without breaking into our emergency fund. But I realized that is not necessarily the case for everyone.
Baby step 1 to financial peace is to save $1,000 in a starter emergency fund. This is not a full emergency fund and won’t necessarily cover everything that may come up in life, but it gives you a little cushion when something happens (like a $200 deductible).
You want to complete this step as fast as you can so you can move on to the next step, paying down consumer debt.
Before you know how much you can save, you need to know how much money you have and where it is going. This is why the written budget is the foundation to financial peace. After you have completed your budget, any extra cash you have should go into your $1,000.
Ways to Save for Your Emergency Fund
- Sell things
- Buy generic items, they are cheaper than name brand goods
- Pack your lunch and make coffee at home
- Cook meals at home instead of going out
- If you do go out to a restaurant, get water instead of paying for drinks
- Cancel or cut back on your cable package
- Unsubscribe to unused subscriptions
Is $1,000 Enough?
Your ultimate emergency fund savings goal is to have 3 – 6 months worth of expenses but if you don’t already have $1,000 then start there. Having $1,000 saved for unexpected expenses will prevent you from going further into debt when surprises happen; like car repairs, home repairs, medical expenses, etc. And surprises will happen! It’s a part of life. But there is no need to stress over them financially.
Also, you will want to save $1,000 as quickly as possible. No need to drag it out. Get it done in a month or 2 at most. You will be surprised how fast you can save $1,000 wen you really try. Then you can move on to paying down debt (Baby Step 2).
My first deer to car accident is just one example how having cash on hand prevented my accident from turning into a financial emergency. Share an unexpected expense you recently had in the comments below.