How To Start Your Emergency Fund and Why You Need One

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This post is now being updated on my other blog, Encouraging Budgeter. Thanks for visiting.

Have you ever wondered how to start your emergency fund and why you need one? If you want to start a Debt-Free Lifestyle, one of the first steps is your initial emergency fund of $1000.00.

If you are familiar with Dave Ramsey’s 7 baby steps and Total Money Makeover, then you know step one is the $1000.00 emergency fund.

Don’t let this scare you off and give up before you ever start. Most couples are in debt and feel they have no extra money to create the emergency fund.

Why You Should Start an Emergency Fund

First, let’s tackle the reason to have an emergency fund. One of the first things you will do when you decide to change your family tree is to create a budget and start changing your mindset about living debt free.

Once you have sat down and created your budget using the every dollar app, is to start saving for your $1000.00 emergency fund. This should be done within the first month. You can do this by selling things in your house, which is the easiest way. Almost every household has things that you can eliminate and raise $1000.00.

Remember, to get out of debt you will have to make a change in your behavior, mindset, and lifestyle. These are called baby steps and the first step is a quick one. Do whatever it takes to get step one done in one month.

You will need this emergency fund in order to stop using credit cards. Most people use credit when they have a household emergency that they don’t have the cash for.

When you create your budget you will account for every category and it should end up with every dollar accounted for. You will now use the cash envelope system.

Ways to Create your Emergency Fund.

Have a garage sale
Sell one of your cars
Take a short term part time job
Stop eating out for a month
Do a once month freeze in spending
Lower or raise your thermostat settings for a month
Cut your grocery budget for a month and eat from the pantry
Use coupons to save money
Take on an online project from home
Tax Refund

Whatever it takes to get your emergency fund complete.

Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler. Proverbs 6:5

Use this verse as your motivation, with the meaning of doing whatever it takes to free yourself from the lender.

What to do with your Emergency Fund after you have it

Now that you have your emergency fund in place what do you do with it? When is it ok to use it?

Don’t use your fund for:

Going out to dinner
Buying new clothes
Gas Money
Groceries

All of these things should be accounted for in your monthly budget. You might have to cut back on going out to eat, shopping, vacations, etc until you have your first 2 baby steps done.

Put your money into a savings account that is readily available. This is not an interest-earning category or account. When you have an emergency, you will need to get the money to take care of your situation right away.