Life happens, right? We all have a plan for our lives, we organize it, write everything down in a planner, or keep a detailed calendar on our smart phones, but do we have a plan for our money? Do we plan for emergencies? Well, we should because I certainly know that Murphy comes knocking. One day in the not so recent past, my husband walked out into our garage and discovered water all over the floor. Come to find out, our hot water heater was leaking. Since we had a plan for emergencies, we did not have to use a credit card to purchase a new hot water heater. How? We have a baby emergency fund for when Murphy visits.
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Baby Emergency Fund
A baby emergency fund? How is that different than an emergency fund? A baby emergency fund (BEF for short) is a small emergency fund that you use for true emergencies only while you are paying off your debt. A fully funded emergency fund (FFEF) is usually 3-6 months of expenses set aside. The FFEF is funded after your debts are fully paid, except for the house. We will dive deeper into these steps by Dave Ramsey in a later post.
So let’s set a goal for your baby emergency fund. If you are single and have minimal expenses, $500 should be good. Families generally have a fund of either $1000 or $1500. You will know what fits your budget and your emergency level.
The next thing you have to decide on is where you are going to keep this fund? A savings account hooked up to your checking account? Will that be too easy to dip into when you have a poor budgeting week? Maybe a Capital One 360 savings account would be better for you then.
If you are a fan of using the envelope system, you can create a new one for your emergency fund if you want to keep it at home and in cash.
Don’t trust yourself with extra cash in the house? Have a relative or close friend (that you trust!) to hold on to the cash for you.
This Emergency Fund has to stay liquid, so do not invest it. You are not trying to even earn interest on it, it is there simply for emergencies only.
Hold yourself accountable, commit right now to where your emergency fund is going to be located and open that account, or create that envelope, or call that relative.
90 Days to Build the Emergency Fund
So how do we get there quickly? Because we want to have this fund set up within 90 days so we can get back to the business of budgeting and paying off debt. Give up a few lattes for the next few months, or skip eating out. Eat from your pantry and cut your grocery budget in half for the next 90 days. It’s only about $11 per day if you stick to 90 days. You can do that, right? A little sacrifice now will prevent a lot of borrowing from Peter to pay Paul later.
Having an emergency fund in place will also prevent you from racking up the credit card debt. Did you know that the average American family has over $16,000 in credit card debt?
So you need to build that up quick, here are some side hustle ideas:
- Swagbucks – earn extra cash for watching videos, taking surveys, using coupons and much more! See how I earn up to $100 per month here
- Survey sites, such as Vindale Research
- Ibotta – get cash back on your grocery, clothing, pharmacy purchases. You get $10 just for signing up!
- Inbox Dollars
- ThredUp – clean out your closets!
- Sell on Craigslist
- Sell on Ebay
- Have a garage/yard sale
- Meal plan and cut your grocery bill in half – use my free meal plan printables that you can find here
- Find a part time job
- Cut the cable cord
- Create a side hustle, like starting a blog – for more information, check out this post
Ask for a raise at work. Hey, you never know! Increasing your income will create a little breathing room and will make saving that $1000 emergency fund so much easier.
Stay disciplined. You might incur an emergency while building your fund up. It happens to the best of us, it’s okay to use the money. That is why you are building that emergency fund, for emergencies. Keep your eyes on the $1000 goal and keep saving towards it.
Do whatever it takes to fund that account in the shortest amount of time possible. Set your pride aside and make and save that cash! Trust me, I know what it is like to live paycheck to paycheck and struggle to just pay the bills. Get over the “can’ts” and believe in yourself. You can do this!
When you reach $1000 in your baby Emergency Fund, don’t stop….use the money that you have been putting aside to tackle your debt next. When you plan for emergencies and have an emergency fund, you will be able to pay off debt faster. We all want to be able to say that we are debt free, right? The extra money that you continue to bring in can start your snowball or avalanche towards your debt. Read about How to pay off Debt using the Debt Snowball Method here.
So you’re not so good at being disciplined enough to save money? Why not automate your withdrawals? In our household, I have a set amount transferred every payday for each of us. It builds up quickly and you forget it’s even there, until an emergency comes up, like that hot water heater last weekend.
Hey, emergencies happen all the time, right? So why not plan for it!
Be sure to check out What are Dave Ramsey’s 7 Baby Steps to Financial Peace, so after you fund your baby emergency fund, you can go on to the next steps in finding your financial freedom.