Take a second and chew on this:
- 57% of Americans have fewer than $1,000 in a savings account
- 39% of Americans have $0 in a savings account... yes, zero dollars.
The sobering statistics are not only a sad reality, they shine a spotlight on the importance of having an emergency fund.
An emergency fund is an account where you stash cash for WHEN a financial crisis occurs. I say when because financial emergencies happen to everyone-- it's only a matter of time, unfortunately.
When to use an emergency fund:
- Unexpected job loss
- Unexpected health or dental care costs
- Unexpected home repairs
- Unexpected car problems
(Notice they're all unexpected?)
When NOT to use an emergency fund:
- Buying a new car
- Buying the hottest tech gadget, smart phone, etc.
- Renovating your home
- Shopping 'til you drop
(These are purchases you can save separately for)
An emergency fund is designed to give you "peace of mind" before, during, and after a financial crisis.
Most money experts advise people to save between 3-6 months of living costs in an emergency fund. That is hopefully enough time to weather a financial storm, or at least buy you time to figure out a game plan, if you think it'll last longer. Fingers crossed it never will.
I read a book that changed the way I think about money. It's called, "The Total Money Makeover", by Dave Ramsey. The financial guru outlines seven "Baby Steps" to reach financial freedom. If you haven't read it, I truly recommend you do. It could change your life. That's a strong statement, but one I stand by.
The first "Baby Step" is to save $1,000 as fast as you can. It's a "baby emergency fund" you can use for small, unexpected financial headaches. It's designed to keep you from going (further) into debt. Remember a few minutes ago, when you read that 57% of Americans don't have $1,000 in a savings account?
The second "Baby Step" is to eliminate debt, except a mortgage. We're talking about crushing car loans, credit cards, student loans, medical bills, and any other kind of consumer debt. This "Baby Step" can take years to complete, but it's arguably the most important.
The third "Baby Step" is having a fully-funded emergency fund. Having one puts you ahead of the game, hopefully for good. It significantly eases financial stress and sets you up nicely to avoid becoming a "slave to the lender"-- falling back into debt.
This is where a "Side Hustle" can help. Once you're ready to start (or continue) your emergency fund, having additional sources of income can dramatically speed up the savings process. Just last month, my wife and I earned more than $1,000 from side hustles. Every penny we made padded our emergency fund. We used our income from our full-time jobs for living expenses.
If you need help finding a side hustle, just click on the links below:
Thank you for reading,
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