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Home / Budgeting / How Broke People Can Build An Emergency Fund


Emergency FundIf you have ever read a single personal finance blog, you have seen a reference to the apparent Holy Grail…the emergency fund. It is a often reverently referred to as an account that just sits around collecting interest and contains enough money to cover at least six months of all of your expenses. When you look at it, it sounds like a pipe dream, especially for those of us who struggle to keep those expenses current as it is. Despite the apparent enormity of the cash needed, broke people can build that emergency fund. Granted, it will build slowly, quite painfully slow at times. Here are a few tips on how to build an emergency fund when you barely have two nickels to rub together.

How Much?

The amount that you will need is a personal thing, but the items that you need to account for will generally be the same for everyone. Here are the large items you need to cover:

  • Rent/Mortgage
  • Utilities (average three months bills)
  • Cable (why not? You can always shut it off in an emergency and have more cash)
  • Cellphone
  • Loans
  • Food
  • Credit card minimum payments (even with insurance, you will have to make a few payments)

Once you have that number, multiply it by six. Okay, breath, it is not nearly as impossible as that number looks.

Make a Plan

You are not going to save that much cash this month or next. It make actually take a few years. I spread mine over three years, but you might be able to do it in just two. So, look at that ginormous number again, divide it by 24 months. It is a little more manageable, isn’t it? You are not done cutting it down yet. Go back to that monster figure, divide it by 104 so you can see what you need to put in the bank every week. Now that is an much easier number to look at.

Finding The Cash

The first step is opening a new savings account solely for this purpose. All you need is the minimum amount your bank requires to hold an account open. My bank only requires $10. Shop around for the lowest minimum in your area. Well, where is the money supposed to come from when you barely have enough gas to get to work and you are paying your bills at the last minute? You already have it in your pocket, you just aren’t aware of it. It jingles when you walk or rattles around in your ashtray. Coins are a great place to start. Remember that 9 cents the cashier gave you back? I started by putting all of that change in an old coffee can when I got home from work each day. No, it did not add up to the weekly amount I needed at first. I was the guy depositing $1.89 one week. The teller looked at me like I was joking or something, but I had $1.89 more than I had the previous week. What about the rest of it?

If you do not have a household budget, get one together. Be sure that your budget includes the weekly number you came up with. Pay it as if it is a recurring bill. Sure, you may need to be flexible with it from time to time. While you are paying yourself, do not neglect your spare change. You may be surprised how much you accumulate in a week’s time. I put a pencil to how much spare change had added up for me over 104 weeks while I was building my emergency fund. As best I could figure, spare change had contributed $750 to that fund. Maybe it came in the shape of $1.89 from time to time, but it added up over the long term.

Preserving the Cash

Here is the trick…keeping the fund intact. You will find yourself looking for ways to spend that money: new television, a new printer, etc. Start by keeping this account separate from all other accounts. Do not tie it to your checking account as overdraft protection, do not have it tied to your debit card, and do not have it accessible from ATMs. When you open the account, the bank will offer you savings and withdrawal slips. You can request to receive deposit slips only. You will be able to withdraw from your account anytime you want, but you will have to go into the bank to do it. The extra time and effort will cause to second guess yourself before any withdrawal, especially ones you already know are frivolous. You may talk yourself out of a few of them.

What should you use an emergency fund for? Do you need an oil change? Budget for it. Do not use your emergency fund. Tire have a hole in it and no cash on hand? Buy it out of your emergency fund. You have to get to work after all. The fund is for expenses that can not be foreseen. Remember this fund is the only thing that may stand between you and eviction if you lose your job, so guard it jealously.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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