Being self-employed means it is very important to be building an emergency fund each month because we never really know how much money we will make the next month.
My husband is a virtual employee so, he has a salary that we can count on. But, I’m a freelancer so, my hours vary quite a bit.
Some months are great … and, others are PB&J for lunch this week kids! Thankfully, we’re pretty good at finding cheap activities to do together as a family!
Mostly because hubs and I have been through every financial scenario from six-figure income to no income. So, we know how to handle this fluctuation and what to do with the budget to even things out.
Don’t Listen To Betty and Wilma
Remember The Flintstones? Fred Flintstone went to work by foot-pedaled car and slid down a Brontosaurus when the day was over?
I used to watch this show when I was a kid and I always thought it was so cool when Betty and Wilma planned a shopping trip and would yell “CHARGE IT!!”
It made things seem so easy. If you wanted to go shopping … you just “charged it” … whatever that meant!
I remember when I was in high school I had two close friends that I spent all of my time with.
One day friend A was gone and I asked friend B where she was. She said, “She and her mom went shopping”
I didn’t get it.
In my house, we only went shopping for groceries and school clothes, and neither of those made any sense in this situation.
I asked, “Shopping for what?”
She said, “I don’t know. They just play hooky and go shopping for stuff”
That is so cool!!
They must be just like Betty and Wilma!
Credit Cards: A Slippery Slope
Using credit cards to spend outside of your income limits is the quickest way to get yourself into serious financial trouble. Of course, as I grew up I learned about charge it and credit card debt and bouncing checks etc. It was a tough lesson but, thankfully, I learned it a lot sooner than some people!
A checking account card versus a credit card can be a little bit confusing. Not that it is a hard concept to understand, just that the actions are the same but, the consequences are very different.
When you use your checking account card, it is attached to your account and you can’t spend any money that you don’t have.
However, with a credit card, you swipe the thing the same way you do a checking account card, and you spend money that you don’t have.
In fact, you spend money that you might NEVER have.
If you are living paycheck to paycheck, which many Americans are, that credit card bill comes around and you can only pay the minimum amount.
That means that the rest of the bill gets compounded by interest before the next payment is due, plus any additional charges are added, and suddenly that $20 t-shirt that you bought with your credit card now costs $50 … and it still isn’t paid for!
The first step to building your emergency fund is don’t listen to Betty and Wilma. Don’t CHARGE IT!
Don’t Forget To Minimize Spending
When you think about building an emergency fund, it can seem like the most obvious thing to do is to make more money and put that away in savings.
However, you can “make” a lot of money just by paying attention to where you are spending it. If you have a household budget (and, I highly suggest that you do) you can take a look at all of the categories for your expenses and limit how much you are spending in each.
For instance, our budget is based on the envelope system, and I only budget $50 per month for eating dinner at restaurants.
In our family of five – that works out to be about one trip to a restaurant per month. For some people that seems very indulgent and, for others it seems like a terrible way to live.
To us, it’s a perfect little treat and a great way to spend quality family time.
If something comes up, I can easily cut that $50 out of the “dinner out” envelope and add it to the “medical bills” envelope to cover bills that we didn’t expect. (my middle kiddo grabbed the hot curling iron while I was fixing his sister’s hair and burned his hand … a trip to the ER was in order)
Paying attention to your current spending habits … and adjusting accordingly … can actually have a huge impact on how much you put into your emergency fund each month
Don’t Underestimate the importance of building an emergency fund
It doesn’t matter if you have kids or not – life is completely unpredictable and anything can happen at any time.
Granted, if you have children, there are that many more opportunities for something unexpected to happen!
But, the fact is, regardless of when or how often something unexpected happens, if you are not financially prepared, it can quickly turn your finances upside down.
For instance, if you make $2,000 per month and your rent is $1,500, you don’t have much of a buffer between you and a major life-upsetting episode. Heck, in this scenario even a really big power bill that you didn’t plan for could throw things into a downward spiral.
Building an emergency fund gives you a plan B. And, when something unexpected comes up, you can handle it.
This happened recently for us when we moved two years ago. We moved across three states so we had a pretty large bill for the truck. We had to stay in a hotel halfway through the trip so that was an added expense and, we had the move-in fees for the new place, which were about $3,000.
The emergency fund had a big dent in it! But, since we knew we would be making this big move, we started putting double the amount we usually do into our emergency fund so that we could cover the cost of the move without depleting the fund.
It’s a VERY good thing we did this because three days after we got to our new home, I was driving to Costco with our youngest and, the car seized up and died.
Luckily, I was going down a little hill and was able to coast into a parking lot where there was a coffee shop. But, unluckily, I was stranded with a six-month-old at a random coffee shop in 100-degree weather.
It turned out the problem with the car was $2,000 worth of work!! Thankfully, we had that money in the emergency fund … even after all of the moving expenses!
If we hadn’t planned so well for the cost of the move, we would have had to pay for the car repairs using a credit card, and that is the first step towards a financial tailspin.
You cannot underestimate the importance of an emergency fund. Things will come up … that’s life!
3 (SIMPLE) Ways We Are Building An Emergency Fund Each Month
It is not as easy as “put money in the savings account” – I know that as well as anybody!
Sometimes, there just isn’t money to save.
The only solution is to make more money. But, that also is easier said than done.
Over the years, we have found a few things that work well to make extra money each month that we just put right into our emergency fund.
This way the money for an emergency fund isn’t coming out of our money that we need to pay bills. If it is possible, we always put extra into the fund on top of these extra money tasks. But, sometimes we can only put the extra money into the fund, and that is always better than putting nothing!
We have had an Etsy store for more than six years where we re-sell vintage cameras and other items.
We love going to thrift stores and buying things that we think are neat, cleaning them up, and then listing them in his shop.
There isn’t enough inventory to turn it into a full-blown business, but it has been a tremendous source of extra money for our emergency fund.
My sister and her partner have used garage sales several times to make extra money for their emergency fund. Somehow, they always find more stuff in their home that they can sell!
This is probably a sign that they need to re-evaluate their expenses rather than counting on adding to their income. But, a garage sale is a great way to add to your emergency fund.
Search for one-time income opportunities.
I follow The Penny Hoarder pretty regularly and always find great ways to make a few extra bucks a month.
Amazon Mechanical Turk is a place where you can do quick little micro-tasks and get paid a couple of bucks.
While these sites definitely have legitimate job leads – I look more for tasks that I can do as a better use of my time than surfing Facebook or watching television.
Get a second job
The word “job” applies to a lot of different things. If you have a full-time job and are looking for a way to add more money to your emergency fund each month, getting another job might not feel possible.
However, a second job could be something as easy as house sitting. My aunt is a professional house sitter and she makes a part-time income from it.
She could make more but, she has rental properties that make a large part of her monthly income and she only needs a small amount from her second job.
My main source of income is virtual assisting. However, if we need to add to the emergency fund, I grab a few transcription assignments from Rev.com to do when the kids go to bed or on the weekend.
I set a minimum amount of money that I want to make each month and add to the emergency fund. Then, I choose the transcription projects that I will do based on how much they pay.
I work as much as I need, to meet my monthly income goal.
Having an emergency fund is very important to protect your family from unexpected situations that can destroy your finances.
Talk with your partner or spouse about how much money would help you to feel safe, and set a plan for building that much money in your emergency fund.
You might choose to do all of these tasks until you have that much in your account – and, then only do one or two to continue adding to the fund.
Do you have an emergency fund? What do you do each month to add to it?