When beginning the journey to financial freedom the first step can seem counter intuitive. Why would we put money away before tackling our debt? Creating an emergency cushion is what allows us to live life and NEVER USE A CREDIT CARD AGAIN. By having an emergency fund we are protected from life’s emergencies.
What is an emergency cushion?
An emergency cushion is a buffer against the unexpected things life throws our way. Rather than returning to the credit card, we are able to pay cash and avoid going into debt. When our car breaks down or our furnace dies, the emergency cushion allows us time and margin to avoid debt.
How much do I save for my emergency fund?
This depends largely on each individual’s situation. For those who own two cars, a house and have five children an emergency cushion should be between $1,500 and $2000. If you rent and use public transportation, $500 allows for emergencies. Generally an emergency cushion should be between $1,000 and $2,000.
How do I save $1,000 when it is difficult to make ends meet each month?
After sitting down and creating a spending plan it may be difficult to come up with $1000 or $200 a month extra. Yet, to begin the process of eliminating debt we must begin by finding $200-$300 a month and tucking that money away so it is more difficult to access. While $200 or $300 a month seems daunting when you break it down, $300 a month is only $10 a day. There are three great ways to come up with an extra $10 a day.
1) Lower Expenses
This is the most common way of providing some extra cash flow. Cut the cable package, or the internet or the phone bill or whatever it takes to create some extra margin. With gas prices so low there is potential to capture that extra money and tuck it into your emergency fund aswell.
2)Increase Income
While most of us think saving money means cutting back expenses, it can also mean creating more income. Whether this means getting a second job, asking for a raise in pay or even making some extra money from home, all we need to do is be creative. This article talks about some neat ways to make money from home. http://christianpf.com/best-work-from-home-jobs/
3) Make only minimum payments on your credit card balance.
When looking for margin in your spending plan, making only minimum payments on our credit cards allows us better cash flow. Usually credit cards are used in times of emergency, by funding our emergency cushion we eliminate our need for credit and use our emergency cushion instead.
An emergency fund is one of the greatest tools for financial freedom. It decreases stress because we know there is a plan for the unplanned. If we cannot find $200 a month to begin the process we need to make a change.
There is tons of education on finances, it is time for implementation. Don’t wait: make a plan and create an emergency fund now, our peace depends on it.