Why You Need An Emergency Fund: 5 Steps Set One Up NOW, No Matter What Your Financial Situation

“What’s the worst that could happen?” It’s a question most of us avoid. Who wants to dwell on what might go wrong, especially with money? That’s what the idea of an “emergency fund” sometimes brings up. It feels like you’re thinking too much about what might go wrong.

Apparently, a lot of us don’t want to dwell on financial disasters, if Forbes magazine is right.

In an April 2018 article, Forbes reported that 44% of Americans don’t have enough cash on hand to cover a $400 emergency.

The good news is that this number is down from 64% in 2011. The bad news is that out of your 10 closest friends, 4 of them are one disaster away from financial ruin.

Ouch.

Of course, these are statistics. But the numbers hit home when that disaster happens to you or someone you love, right?

Still, many of use resist starting an emergency fund for a lot of reasons. Most of them based on fear.

Not too long ago, setting aside cash for a rainy day felt impossible to me, too. I’d put $20 each month into a savings account with good intentions. But as fast that small amount into the piggy bank, it came back out.

Much like yo-yo dieting, I was the “yo-yo saver.”  I drained my emergency reserves as fast as I created them.

Not only was I vulnerable to money emergencies, but I also felt powerless. I believed that I’d always be hanging on the edge of financial disaster, and that there was nothing I could do.

If you’re feeling this way, and you’ve avoided setting aside a little “worst case scenario” money because of it, I have good news!

You can start saving now, no matter what your situation. If your emergency fund is running low (or doesn’t exist), there’s no shame in your game! All you need are a few mindset shifts and a simple plan to turn things around.

I’ll show you how to start up a back-up money stash, and how to keep from dipping into it out of desperation, no matter how the numbers look for you right now.

So grab a pen and paper, and let’s create some peace of mind for you and your money!

Step 1: Keep It Real. Good news first! Most financial emergencies cost $1000 or less. This is a reasonable amount to shoot for when you’re getting started.

If you make less than 25K a year and this sounds impossible, don’t worry! Start with a $500 emergency fund goal, and take it from there. Make your goal proportionate to your income as it is now–no judgment!

If even that sounds like a no-go, stay with me–you can still do this!

For years I put off establishing my emergency fund because I couldn’t fathom setting aside six months of income without needing it right away. So I didn’t even try.

After I got done overthinking it, though, here’s what I did. I created a goal that matched my current reality, and I started saving toward that goal. That was when I began to see massive progress.

So if for you that’s saving $20 a month, that’s wonderful. Even if it’s $10, that’s a start. Make your goal achievable, set aside money consistently,  and let that positive energy build your saving momentum.

Step 2: Know your budget. If you find yourself in a yo-yo savings cycle, it might be time to take an honest look at your numbers. That means putting pen to paper and making a simple budget.

I get it. Nobody likes to look at the cold, hard numbers. But here’s my little trick to get past any scary emotions that come up.

Wherever your budget stands right now, look at it honestly, but don’t take it personally! The numbers are no reflection on you as a person. Really.

Be real about your budget, but give yourself a break. Let the numbers be your guide to getting where you DO want to be, not a judgment of all your past mistakes.

I took an honest look at my budget a few years back. At the time, I discovered that with rent, utilities, and all my other expenses, I was living beyond my means.

I couldn’t walk out on my apartment lease, and I wanted to keep the lights on too! I needed to shift my energy and start creating a new reality, though. And fast.

So here’s what I did…

I created a basic budget. I then took the steps to increase my income (like adding in a side hustle or two). Then I chose not to renew my lease, opting for an alternative living arrangement.

Believe it or not, those intentions made a world of difference. Within the year, not only did my living expenses decrease from 70% of my income to 20%, but my income also went up!

Remember, just because you feel stuck in your current reality doesn’t mean you can’t change your reality. True story.

Set an intention to rewrite your story. Take an honest (and non-judgmental) look at where you are now. Become aware of money leaks and bottlenecks, set intentions, and make an action plan. Even if it’s one simple step to start!

Step 3: Change your thoughts, change your life. If you looked at Step 2 and thought to yourself, “I know my budget, I’m broke,” I get it.

But here’s the deal. You can change your reality. Now is the time to own your actions and take some responsibility.

Changing how you think and feel about money will change your life–it definitely did for me!

Money mindset is everything. The great news is that there’s a lot of support out there in the form of books, podcasts, coaches–the list goes on and on!

Some of the resources that changed my money life are the books “Get Rich Lucky Bitch” by Denise Duffield Thomas, “Rich Dad Poor Dad” by Robert Kiyosaki, and the Brooke Castillo podcast.

These resources are just a few that are available to you as well!

You might’ve heard this before, but it’s still true. If you want to see fast results, change your thoughts. That includes how you think (and feel) about money.

Step 4: Out of sight, out of mind. Sometimes it helps to let the behind-the-scenes crew take care of things for you. Luckily enough, these days automation is readily available, and it can be a big advantage when it comes to your income!

What do I mean by “automation,” in this case?

I’m talking about tools that set aside a percentage of your income automatically before you even notice it’s gone. Out of sight, out of mind, as they say!

If you’re an employee, ask your payroll provider if they can automatically deposit a certain percentage or dollar amount into a designated account, and make this your emergency fund.

If you’re self-employed, automate your designated amount each month around the time that you collect payments from your clients or customers.

You can set up automatic deposits from your business accounts into a separate account so that your savings grows without your having to think about it!

For this purpose, I use a Capital One Savings Account as a home base for my emergency fund.

Once I established my initial emergency savings, I kept that savings going by automating it each month via my Capital One Savings Account. This account is easy to set up, and it gets your emergency savings contribution into your account before you have a chance to miss it.

Even better, it pays a high-interest rate, and it takes two to three days for the transferred money to show up in your account. This encourages you to think twice before spending your designated savings money!

There are other options too, so look around and see which one works best for you! (And you can check out Capital One Savings Accounts right here!)

Step 5: Reward yourself! Maybe you’re not motivated to save every month. But what if there was something in it for you beyond the peace of mind of an emergency fund?

Trick yourself into staying on track by rewarding yourself for your saving efforts!

For example, suppose that when you hit your emergency savings goal, you book yourself a massage as a reward? It’s a simple (and relatively inexpensive) perk that’ll give you more incentive to keep the savings going.

Of course, there is that emergency fund side effect they call peace of mind, but why not add an extra reward to that? 😉

Along those lines, some banks even offer rewards to their customers who create emergency funds. My bank ran a special a while back, offering 6.1% interest on customer accounts for those who started emergency savings. Needless to say, I jumped on that offer, moved assets into that account, and reached my goal in record time!

Sometimes all it takes is a little extra motivation to get started on a goal. The key is to know what motivates you, and create a rewards system that supports that!

So let’s recap your emergency savings plan for the next 90 days!

• Choose your target amount
• Choose your contribution frequency (weekly, monthly, etc.)
• Write down the amount you’ll contribute each time
• Take the steps to save that amount per time period
• Decide how you’ll celebrate when you reach your goal!

Now, let’s walk through a little example…

Let’s say that you wish to save $1000 in the next 90 days, and you plan on setting aside money every week. That translates into $83.34 per week.

So set the plan to create that money every week. That includes things like reviewing your budget, working on your money mindset, adding additional streams of income, and working with your bank or payroll provider to automate your savings.

Start where you are, set a reasonable goal, and take one step today, then another tomorrow. The peace of mind and the energetic shift from scarcity to abundance will be priceless!

Give this a try, and let me know how it works for you!

Until next time,

Love, light, and MONEY, Honey…

Kaylee

P.S. What questions do you have about any of the above steps? Leave me a comment and let me know how I can help you get started!