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An emergency fund is one of the first things you should build up before getting crazy with paying off debt or even buying a home. But I have a better reason for you to have an emergency fund: so you can sleep at night. Plain and simple. Here are some other advantages to having a sizable emergency fund:
- You can increase insurance deductibles. Crash the car? The house burns down? If your deductible is higher, you’ve been paying less annually for insurance, but you have enough in your emergency fund to cover the deductible.
- You don’t need a new car. Your car needs repairs? Just get it repaired. This will be much cheaper than a car payment.
- You will earn a little interest. It’s not much, since the cash should be pretty liquid, but every bit helps.
- If your car breaks down, you won’t get a huge headache trying to figure out what pot of money to borrow from. You can just get it fixed, then refill your emergency fund.
- You don’t need a credit card. I haven’t had a credit card for seven years. I never need one, but that’s what the emergency fund would be for.
There are many more reasons to have an emergency fund. Where has your emergency fund saved you?
If you don’t already have a sweet emergency fund, don’t worry. You can rustle the money up quickly by reading personal finance blogs, and the more money you save, the quicker you’ll be fully-funded. Here are some quick ideas that you probably won’t even notice if you plan ahead:
- Bring your lunch to work for a month.
- Bring your family together for a family meeting and tell them you need to skip going out to eat for a couple months, and are instead going to try new recipes at home, as a family. Each family member gets to plan one Saturday night’s menu.
- Plan your car trips in advance. Try consolidating trips to conserve super-expensive gas.
- Don’t buy anything (except food) that isn’t necessary for a month or two. This is how I live anyway, and my family and I are still alive.
- If you don’t have a family, try hanging out with your more industrious friends.
- Get a second job for a few months. This is serious. You will only have to do it for a few months to get the first thousand before starting to pay off your debt.
These are just a few ideas, but I’m sure you could get your first thousand in a month if you followed all these steps. What are some things you have done to save up your emergency fund?
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.