When the stock market and real estate market crashed simultaneously in late 2008 and early 2009 we were unprepared because we didn’t have an emergency account.
I was 22 years old with a new baby at home and several hundred thousand dollars in debt. I had no savings account, no college degree, and my wife and I both lost our great paying jobs within 30 days of each other. The following years were spent working multiple jobs at the same time with slashed expenses. We sold everything we owned, including vehicles, to help us climb out of a hole and eventually build a small emergency account.
And the problems we faced… the financial struggles we had to go through for 5 years after… they could’ve easily been avoided if we had been better prepared.
Bad stuff happens. It just does. We’re in a rapidly changing world with rapidly changing technology that is eliminating jobs. Most economist will tell you our markets are over-inflated and are at risk of busting again. There’s the election, the Brexit vote earlier this year, Ford just stopped production in 4 plants, health insurance premiums are increasing rapidly….
I’m no doomsday theorist. I’m not predicting the end of the world or anything. But this is a dangerous time to be living paycheck to paycheck without any type of emergency account in place.
Our financial collapse would have merely been a financial hiccup if we had an emergency account when we lost our jobs. It took us several years after losing our jobs to find steady employment. But by working multiple jobs at the same time we were able to stabilize our income enough to pay our bills within 4 months.
But those 4 months were enough to set off a chain reaction and put us behind which caused late fees, default interest rates, lawsuits, and more. It took years to clean up the mess.
If you’re living paycheck to paycheck or don’t have any emergency account in place, you need to get one now. And the good news is that you can save up a small emergency account equal to 1 month of your expenses super fast.
How to create an Emergency Account
- Temporarily pause your retirement savings – I understand if you have a company match that you are hesitant to do this. But we’re talking about a really short time period of pausing your future to take care of today. When you invest into your 401k and other retirement plans without an emergency account in place first, you risk needing to tap into your retirement account early and paying high penalties and fees.
- Have a garage/online sale – It’s never been easier to get rid of your unused stuff. With Facebook buy/sell/trade groups you can sell individual toys and articles of clothing for $1 or $2 each quite easily. That type of stuff adds up fast. If you have furniture that you don’t like anyway and will likely replace in the near future, sell it now.
- Whole life insurance – Not everyone has a whole life insurance (cash value life insurance) policy but if you do, you’re paying too much for not the right type of protection. Get a term life insurance policy for less money and more coverage in place first and then cancel your whole life policy. Once you cancel the whole life insurance policy, you’ll receive a check for the cash value you had saved up in the account.
- Adjust your W-4 at work – If you’re consistently receiving a tax refund each year then you are having too much money taken out of your paychecks. A $2,000 annual tax refund means you let the government borrow $166/month from you when that money could be better used by building up your emergency account. Adjust your exemptions so your company takes out less for federal income tax.
- Ask for a raise – Are you being a rockstar employee at work? Sit down a talk with your boss about what it takes for you to get a raise. Maybe you take on some extra responsibilities or seek a promotion or even just ask for some overtime pay. But if you’re a rockstar employee then you probably deserve a raise and that could help you fund your emergency account. If you hate your job or can’t get a raise, maybe start applying for other jobs that pay more. And if you’re filling out job applications anyway shoot for the stars and fill out applications for jobs that pay double your current salary. Maybe you’re charming enough to get the job!
- Shop existing expenses – Do you really need cable TV? Can you get a better deal on your auto insurance? Homeowners insurance? Are you able to lower your cell phone bill any by dropping to a lower package or switching carriers? Could you switch electric companies to get a lower rate? Spending a few hours shopping the rates of those bills you have to pay every month can reduce your expenses drastically. That saved money can then go toward your emergency account.
- Side hustle – If you’re super serious about getting an emergency account in place fast then you should consider a second or part time job. The great news is there are tons of options for this now. You could drive for Uber or Lyft or if you don’t like people check out Amazon Prime Now or DoorDash delivery. I personally delivered pizzas and worked evenings as a janitor at a church. You could also start a small business, mow lawns, or babysit. I’m a big fan of the entrepreneurial route because it allows you to control your schedule more than working retail and you typically make more money.
There are tons of other ways you can save money for your emergency account but you need to know that it’s important that you get one. Make saving money for an emergency account a priority and get started today!
What are some other ways you can think of to kickstart an emergency account? Leave your thoughts in the comments below.