Are you on a frugal path? Image by M. Gustafson Gervasi, 2013
Seeking to live a frugal life? If yes, an emergency fund is essential. Already have one? Aim to increase it by 25% or at least keep it up with inflation.
Why? An emergency fund does several things. One, it gives you freedom. To be crass, down in Tampa where my husband spent many years, it is called FU money (and not as is the school). Money stashed away allows you to take risks, follow the path true to your heart, and not stick with something that is not healthy for you. From a career change to leaving a bad relationship to leaving behind the deposit on your children's preschool contract (a long story there), an emergency fund grants you independence. And two, an emergency fund allows you to access a pool of cash from which to make unexpected purchases. Put down the credit card or financing papers, avoid interest payments, and watch the buying power of saying "You want, $5,200 for the car, I'll give you $5,000 in cash, now, or no deal" (my husband used that approach when he bought his last car -- and yes, it was only $5,000 and runs well now, four years later).
How? Step one, get fired up about wanting an emergency fund. If you don't want it, it likely won't happen. Step two, purge (see yesterdays post). What around you can you sell? Think Ebay, Craigslit, Amazon Resale, or if the weather supports it, a garage sale. Step three, open a savings account that you call "Emergency Fund". Make sure you cannot access it with a debit card, make it hard to get to to reduce spontaneous decisions, which are usually a bad idea. Step four, stop shopping! I don't care if an item is 80% off, if it is not essential (i.e. food, shelter, transportation) then it stays at the store. Remember, this is not for life, just for the moment. Step five, get to work. Already have a job? Get a second one! Freelance, pet sit, babysit, tutor, deliver pizzas. Bring in extra dollars, and then put them in the Emergency Savings. Note: chances are, if you are working your are also not shopping unless you got a job in retail.
Aim to have 6 to 12 months of monthly expenses built up in the account. Then when life happens, as it always does, you can pull from the savings. Once you are back on your feet, build it up again. That is where our frugal family is these days. Thanks for reading and enjoy the frugal path!