By now anyone who has serious financial troubles is probably sick of well-intentioned people encouraging them to start an emergency fund. When you are struggling just to pay the bills, it can seem impossible to build a fund to protect you from a future emergency. Building funds like these are far harder than it sounds when you listen to a financial adviser or successful friend. Even so, it is still possible to build an emergency fund on a budget. It might happen slowly, but if you start now you can start taking steps towards that goal.
Some tips on starting an emergency fund on a budget:
- Cut spending ruthlessly: Of course this is always on any budgeting list, but to many it can seem impossible. If your lifestyle is currently quite frugal, it might not seem sustainable to reduce it further, but keep in mind you won’t have to keep it up forever. As soon as you have created the fund you can start to live more normally. Make every possible cut. Over time, even small savings will accumulate into a substantial cushion.
- Find a side income: Sometimes you simply won’t have enough income to save. Consider creating a source of side income by taking a part-time job, getting involved in a gig economy business like Uber or doing freelance work. Commit to spending the extra income on creating a fund for emergencies.
- Make your emergency fund off-limits: When you are living on a budget, it’s easy to only think about the short term. It may be tempting to use your emergency fund to pay bills or make an important purchase. It’s imperative that you use this fund only in the event of a genuine emergency.
- Don’t get discouraged: Understand that even with these tactics and sacrifices your savings may be small, but don’t give up. Emergencies are rare, and if you keep it up you will eventually succeed in building a decent-sized fund to protect yourself. It might be a long time before you ever have to use it.
Creating an emergency fund on a budget can be hard work, but it is one of the best ways to create peace of mind and prevent yourself from going into dangerous debt when emergency strikes.
Julian, Crowder & Shuster are Lewisville bankruptcy attorneys. We handle family law, bankruptcy and criminal defense.