Emergency Fund – How to Start from Nothing

Emergency Fund – How to Start from Nothing

by Mark Garro | Thrifty Tips

How much do you have in your emergency fund? $100? $500? Or are you reading this thinking “Emergency fund? Yeah right!” Finding ways to create a savings account shouldn’t be overwhelming. I’ve got some tips and tricks to putting a little bit of cash aside so you can begin developing the emergency savings you need.

Disclosures: The links in this post may contain affiliate links through which I can receive a small commission at no additional cost to you if you make a purchase after clicking on my link.

Emergency Fund Help

First let’s start with what exactly an emergency savings is. An emergency savings is just how it sounds – funds that have been set aside to be used only in the event of an emergency. These emergencies can range everywhere from losing your job, crashing your car, or an unexpected illness that leaves you with outrageous medical bills.

It is impossible to be ready for any emergency that comes your way, but one of the best things you can do for yourself and your credit is to create an emergency fund to bail you out of any unforgiving financial situations.

If you’ve seen how I create a budget, you know that we don’t have a lot of wiggle room. Between daycare costs, student loans, mortgage – it’s hard not to live paycheck to paycheck!

When we bought our house in 2014, we obliterated our savings and then some. Despite a thorough inspection and a supposed HUD-regulated appraisal, we ran into a few issues shortly after moving in and had to pay for repairs with a credit card. A year later and $276 in interest later, I’m happy(ish) to say we’ve paid that off and no longer hold any credit card debt. If we’d had an emergency fund, though, we could have used that $276 as an additional payment on our mortgage or car loan, thereby saving us not just the $276, but whatever interest was charged on that payment that was never made.

Why a Credit Card is NOT a Savings

A credit card can be great if you use it properly. Because we do so much of our household shopping through Amazon Prime, we have an Amazon.com Rewards VISA. It’s great because we earn 3% on anything bought through Amazon plus 1-2% on everything else. We even got a $50 gift card when we signed up! The trick is making sure that we only use it on things we already have the cash for. This way we can immediately pay it off once the bill comes but we still earn cash back that we can put towards future purchases. I love going to check out on Amazon and spending next to nothing because of how quickly the rewards stack up!

Avoiding Debt

Notice, though, that I said we only use our credit card when we already have the cash to pay it off. Whether you have the cash tucked away in the bank or you have the freedom to pull it out of a paycheck, the only time a credit card is a reliable option is if you absolutely have a way to pay it off. It is not an option as an emergency fund.If you use your credit card as a way to get yourself out of an emergency, how will you pay it when that bill comes due? For particularly expensive emergencies, that bill could sit on the credit card for months, or even years, before it is paid off and then you’re looking at hundreds, if not thousands, of dollars in interest!

The interest on credit cards can be high, and as you continue to go months and months without being able to pay your debt off, the interest will only continue to grow. If you can’t afford the emergency in the first place, you definitely can’t afford to pay more in interest than you expected. Continuously avoiding paying down credit card debt will also negatively impact your credit. If your credit score gets too low, you will have a difficult time should you need a car loan, money for college, or you want to buy a house. Emergencies are unavoidable, but you don’t want to make one worse by giving it the power to ruin the rest of your life financially.

Why Having an Emergency Fund is a Must

If you’re already living thrifty, you may think you don’t have enough cash to set aside for an emergency fund. I know, I’ve been there. When you’ve created your budget and you’ve got every penny accounted for, it’s easy to say “I KNOW I can’t afford to save…” but truthfully, you can’t afford not to.

It’s frustrating, I know. You know your finances and they already feel stretched to their limits. You may want to click away now, angry that I should so presumptuous as to say you have to start an emergency fund. But, please, stick with me for just another minute.

It adds up

Any money you can save, even if it’s just $5 a week for now, will add up eventually. Hopefully you won’t experience any emergencies any time soon, but even if you do, any actual money you have will help make a difference in what you have to put on credit.

Let’s say you have a credit card that sits at a 27% interest rate and you experience a medical emergency that costs you $2,500. With a $100 now owed each month (and that’s $100 you already said you don’t have but are now required to find), that bill will take you over three years to pay off and end up actually costing you $3,800.

If, however, you had even just $750 in savings, that same bill (while still costly) will only cost you $2,300 to be paid off in 23 months. So that $750 in savings is actually saving you more than TWICE that in the long run.

A general rule of thumb on how much to have in savings in around 6 months of living expenses; for us, that would be $19,000. I see that number and I immediately want to laugh and cry at the same time. We are no where near that $19,000 mark. In fact, I see that and I’m right there with you – it seems IMPOSSIBLE!

But then I remind myself – it doesn’t need to happen overnight. I think back to what a difference having only $750 makes and then I can breathe again.

How to Grow Your Emergency Fund

Begin saving by making a small goal, maybe one month of mortgage and utility payments. Then take a good long honest look at your budget. What can you cut out or cut back? I bet you can cut your budget by at least 5%.

Here are just a few ideas on how to cut back:

  1. Your cellphone plan. We were paying $160/month for our two phones until we switched to Republic Wireless. Now our bill averages $38/month. Why? Because with Republic Wireless, you only pay for what you use. For example, if you pay 2GB per month ($30) but only use 1GB, you’ll see a $15 credit on your account the following month. I love it!
  2. Check out my post on how to eliminate kids clothes from your budget (don’t worry, they won’t go naked!)
  3. Get rid of cable. I’ll admit, this one was tough for me. Not because we watch a lot of TV but because the one show we do love to watch isn’t available on Hulu or Netflix until after the season is done. Guh. So many spoilers!! But we did it anyway and I’m glad because it saves us well over $600/year.
  4. Have a little one in diapers? There are many ways to slash costs on those, including switching to a generic brand. Check out my best tips on how to save money on diapers!
  5. See if your gas company has a flat rate budgeting plan. This way you know exactly what you’ll need to pay each month versus having more money in the summer and scrambling to find it in the winter.
  6. Declutter your home and put any extra income you earn into your savings account!
  7. Consolidate your student loans and secure a lower interest rate.
  8. If you have credit cards, call and ask them to lower your interest rate. They might refuse, but they might not. It never hurts to ask!
  9. Eat breakfast. Wait, what? Yep, I said eat breakfast. Start your day off right so you’re less likely to splurge on vending machine treats or fast food for dinner.
  10. Do a majority of your shopping online. Not only will you save on gas, but you can often buy in bulk and save on a lot of your groceries or household goods. For example, I never buy baggies in store. At Target, they’re $4.59 for 38 (or .12 cents each). On Amazon, I got 500 for $28.36 (or .05 cents each!)

Trim the Fat

Once you decide on ways to trim, you will slowly but most certainly reach the goal you have made for yourself. It is also important for you not to view the money you set aside as a typical savings account. Only take money from this particular bank account in the event of a true emergency, which doesn’t include a new cellphone or a new car.

Begin saving by making a small goal, maybe one month of rent or mortgage payments. Set aside as much of your paycheck as you think you can do without, even if it is only a few dollars. You can also spend a bit of time each week earning some extra cash and automatically put that aside for savings. As you continue to set aside little bits, you will slowly but surely reach the goal you have made for yourself.

For many people without much disposable income, developing an emergency fund seems like something completely out of reach. While restructuring your budget can seem overwhelming or stressful at first, it’ll be well worth it in the long run. Setting aside just a few dollars a week can get you on track to a decent emergency fund and keep you from making a bad emergency even worse!

The post Emergency Fund – How to Start from Nothing first appeared on Thrifty Guardian.

The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

Why You Need to Stockpile Presents for Your Kids for the Holidays — or Any Occasion!

Why You Need to Stockpile Presents for Your Kids for the Holidays — or Any Occasion!

by Mark Garro | Thrifty Home & Family

We have totes for everything — storing holiday decorations, keeping the umpteen feral cats in our neighborhood warm during cold winter nights, planting small varieties of tomatoes, etc.

It’s not quite as bad as my mason jar habit, but it’s getting there…

Then, one summer, we found an extremely value-priced Imaginext playset at a garage sale, and my love of totes jumped to a whole new level.

We made the $2 plunge and bought the toy for our son, but as “luck” would have it, he was being extremely contrary that day, so a new toy wasn’t in the cards for him. While we pondered where we could store this fairly sizeable and yet 99%-cheaper-than-new playset, my thoughts strayed to a large, grey tote we had in our attic.

So, with the toy safely stashed in our 150-year-old attic, away from prying hands and nosey toddlers, we decided we’d simply give it to our son for his next birthday, which was in a few months. As per routine, we went out the next weekend to garage sales and found a really cool toy guitar for our daughter. Again, it was, I think, a dollar, but we don’t like the habit of giving our kids presents for no reason, so up to the attic it went.

Thus, through the magic of simulated time travel and a knack for spotting good deals on gently used toys, the Future Present Tote was born.

But What About Buying New Toys?

When I was a kid, I’d always get a combination of hand-me-down toys and new toys for holidays and birthdays. (I also got socks and stuff, but I try to block out the more sadistic traits of my family and focus on the good.)

Whether the present was a brand new doll or a tea set from Goodwill, I never knew the difference because it was always new to ME. I mean, it’s possible my toys were judging each other on being shiny and new, like some Mean Girls/Toy Story crossover, but who was I to get involved?

As a parent, though, I totally understand why my mother or grandparents might have opted to give me secondhand stuff — toys are expensive.

Not only is the cost an issue, but new toys are…well…sorta wasteful, don’t you think? When you buy a used toy or doll, you cut down on package waste, and you might save an item that was otherwise destined for the landfill. You put money directly into the hand of an actual person rather than a huge corporation. And, if after their presents are opened, your child decides within a few months they no longer like Power Rangers, you are out like $10 instead of $100+.

The New Adventures of Old Toys

If you have older children, I can see why you might hesitate to give them “used” toys, but you’d be surprised what you can find at garage sales and online resale sites that are actually in really great shape! For example, when I worked at PBS, I went on a huge Bob Ross kick and ended up buying a Bob Ross paint set.

Once I realized that maybe I wasn’t so great at painting happy trees, I decided to sell it — nearly new and at a third of the cost! Something like that would make for a great gift for older kids.

On the other end of things, if your children are young enough, you can also “retire” certain toys to the future presents box when they get new ones. This frees up space, reduces clutter, and allows you to keep them interested in a lesser amount of junk well-loved toys and stuffed animals. Then, after a while, you can reintroduce the old toy and watch them regard it with renewed interest.

Fantastic Deals and Where to Find Them

Where to stock up on future presents is probably the most fun part of the whole experience, aside from the money you’ll save. We love spending a Saturday morning perusing garage sales during the summer — it’s a great way to score deals while also enjoying sunshine and exercise as a family! Typically, we find some decent things in the fall, but those first spring garage sales are where it’s at.

People are very eager to clear their house out after winter, and especially since Christmas’ excesses and new toys are somewhat still lingering, you can get some really cool stuff dirt cheap.

Another opportunity is Facebook’s Marketplace feature. As your kids’ birthdays approach, run a few casual searches on their favorite things, and you’ll be surprised at what you can find. We picked up a Doc McStuffins playset for my daughter for $1 that would normally go for $30, were it brand new. It’s in pristine condition, not missing anything, and the family was happy to get rid of it as their children had grown out of it.

Granted, it’s a bit bigger than the tote, but the concept still holds true — she got it for Christmas and ADORES it.

Give Totes a Chance

This isn’t the first nor last time I’ll wax poetically about the usefulness of totes, so you might as well get on board. Pick up a tote and pick a hiding spot because this method of saving money is a keeper.

The only downside, of course, is that if you don’t hide it well, and I mean really well, it’s like a time capsule treasure chest for sneaky little hands. Aside from that, though, get yourself a future presents tote and start saving money for your future in the present.

More From Thrifty Guardian?

20 Parenting Mistakes That Could Scar Your Child for Life

The Easiest Ways to Start a Christmas Savings Account

The post Why You Need to Stockpile Presents for Your Kids for the Holidays — or Any Occasion! first appeared on Thrifty Guardian.

Featured Image Credit: Shutterstock / Yuganov Konstantin