So many of our credit repair clients are with us because they never planned for a rainy day and hit a financial pothole that ruined their credit. If you missed my blog yesterday on how Emergency Funds Aren’t Always a Top Priority, I’d suggest seeing just how bad the problem is in this country.
The bottom line is that most Americans that need credit repair, or that end up filing for bankruptcy are in that situation because a financial emergency wrecked their way of life. Whether it was divorce, job loss or a new baby they had to take care of, the end result was usually disastrous.
With that in mind I think it’s important to have money put aside for when these unexpected events cross your path. But not everyone knows where to start, so I’d like to get into the basics of how I advise people to get the ball rolling on their nest egg.
How to Start an Emergency Fund
Start Small – You need to start somewhere, and it can seem overwhelming to try and put large sums of money into savings. Trying to put away a few months of living expenses isn’t going to happen overnight. Even if you can only put aside a few dollars a week, it’ll start to add up in time.
Utilize Direct Deposit – A lot of companies are using direct deposit to pay their employees. Use this to your advantage. Have a small amount deposited directly into a savings account. If you’re not thinking about it, you might not even notice that it’s being taken out of your paycheck.
Set Up Automatic Deductions – This is similar to having it taken out via direct deposit. Many banks will automatically pull money from your checking account to a savings account on a specified day each month. By doing so you’re guaranteeing that the money is being stockpiled without having to think about it.
Reduce Expenses – Do you have a Netflix Account? Do you drink 2 cups of Starbucks coffee a day? Almost everyone has their little vices that cost them too much money each month. Identify what you can live without, or what you can substitute with a little extra effort on your part, and make the change. Whatever you save put directly into savings.
Stockpile Financial Windfalls – Sure, you may not think of your tax refund or holiday bonus as a “financial windfall,” but that’s exactly what it is. Don’t rely on them and certainly don’t spend them before you even get them. Obviously pay off your debts with these sums of money, but try to put as much as possible towards your nest egg.
Keep Paying Off Debt – I don’t mean keep paying off a creditor after you’ve completely paid off an item or a debt. What I do mean is to keep that payment budgeted into your monthly expenditures, but instead put the money directly into savings. If you were able to get by with that budget beforehand, you’ll certainly be able to get by afterwords.
Consider a Second Job – Not exactly the most popular tip, I know. But think about what working just one extra day a week can mean to your finances. Many people do what they love on their days off. If you love to write, see if you can freelance. Love to paint, see if you can sell some artwork. It won’t be long before you have a healthy savings account.
Make Your Money Harder To Get To – If you’re like me it might be too easy to dip into your savings. We assume it’ll be put back with the next paycheck, no big deal. If that’s something you struggle with, make your money harder to get to. Roll it into a CD or a treasury bond so you’re not tempted to skim a little off the top (for something you probably don’t need).
Always Expect the Unexpected
If you’re able to plan for the rough times in your life, you should be able to get yourself through without breaking the bank. If you can get yourself up to about three to six months of your living expenses squirreled away, you’re off to a good start. Keep building on your successes and you should be debt free with a nest egg worth bragging about soon enough.
Related Articles:
