It is always good to have a little something tucked away for a rainy day. Usually when that unexpected day comes – it pours! Unplanned circumstances appear, often overnight, whether they be of a financial, personal or business nature, and life quickly shifts. Having an emergency fund set aside for just such events can help you roll with it, instead of being steamrolled by it.

Typical Emergency Fund Scenarios

Many common but unpredictable events require an emergency cash infusion. A career interruption, whether voluntary or not, usually has a financial impact during transition. When accepting a new job, relocation expenses are often involved and just as often are not covered by the new employer. Weddings are big events which can break the bank for close friends: expenses of $500 are not at all uncommon once you factor in attire, gifts, showers, special dinners and hotel costs. A medical emergency that requires an emergency room trip and perhaps medications that are not covered by your insurance deductible can add up to a big number very quickly. Unexpected car and home repairs also tend to be bigger-ticket expenses that can have a large financial impact.

How Much Do You Need?

First, you need to know how much you spend. If you haven’t done it already, track your expenses for three months and see how much it costs you to live. Break it down into essentials and nonessentials. A full year of financial history is better, because some expenses are highly seasonal in nature.

The rule of thumb is that you should have at least three months’ living expenses on hand as a reserve. Six months is better. But even three months is a good chunk of change that isn’t going to come into your hands all at once, so start with a more attainable goal of $500. This will cover many car repairs, some minor injuries, and the aforementioned friend’s wedding.

Quick Actions to Make Cash

Let’s say the worst has happened and you find yourself in a financial jam before you built up a reserve. Here are some quick actions you can take.

Sell something that is sitting idle that you can do without. Old exercise equipment, tools, outgrown kid items, things you have replaced with newer models. Or sell something that isn’t idle but that’s nonessential (think toys like motorcycles, cameras, electronics, and jewelry). Taking a second job, even just for a month, might get you over the hump. Find a one-time income opportunities like participating in focus groups, being a secret shopper, doing online surveys, or baby-, pet-, or house-sitting jobs.

Making budget cuts is another way to “find” extra money. Foregoing the little daily habits like eating out, movies and concerts, memberships, and unnecessary car trips can make a surprising difference over a month’s time, as long as you’re careful to divert the savings toward paying off the unexpected expense.

Getting Started

Stepping back from the disaster scenario: a painless way to begin building an emergency fund is to have a consistent amount deducted from your paycheck and direct-deposited into a savings account. You will probably not miss $30 or $50 a week, but those savings will amass steadily.

Take the budget-cutting actions recommended above, and shop around for better rates on credit cards and auto and homeowner’s insurance. Cut your transportation expenses by carpooling, using public transit, or riding a bike to work. Be conscientious about putting all these savings into your reserve fund rather than into new toys or nights on the town. You might wind up enjoying life more and gaining peace of mind, knowing you have a financial cushion.

Call the accountants at Preziosi Nicholson today to learn how we can provide personal financial advice to help you save and to create a reserve fund for unexpected situations. Our office is located in Millville, NJ. 856-794-8400