5 Ways To Establish A 1 Year Emergency Fund

The average American can't cover a $500-$1000 expense

If they can cover it, it's usually in the form of a credit card.

Debt is the primary way we fund planned and unplanned expenses, which can get pricey.

The longer you continue this path, the more challenging it becomes to get out of debt. It's not impossible, but you're creating a mountain instead of a hill.

The only way to shift the pattern of using debt to fund your life and emergencies is to start spending less than you earn.

The Six Ways I Established 1 Year Of Expenses

1. Determine what amount you need to save.

2. Decrease my expenses.

3. Increase my income.

4. Continue investing.

5. Save ferociously.

6. Focus

#1 Determine The Amount

You're going to need to ask yourself a few questions before you start the process of funding your 1-year emergency fund:

First, what is the monthly cost of your expenses?

Second, is this number the lowest amount of expenses you can pay?

Third, what is the monthly cost of your expenses multiplied by twelve (months)?

If you are living on your emergency fund, you want to ensure you eliminate and decrease as many non-essential costs as possible; this is a bare-bones fund.

What does bare-bones equate for you, and what can you cut out?

Whatever you decide, you can eliminate it if you have to; consider eliminating it from your budget to save on costs now!

#2 Increase My Income

When your income is fixed, you can only save a certain amount of money each month unless you decrease your expenses significantly. You can only decrease your expenses so low (to $0).

#3 Continue Investing

It might seem contradictory to focus on two goals at once, but you should continue your investing efforts while you're funding your emergency fund.

Investing your emergency fund in a low-risk fund is prudent, so you're not sitting on a pile of burning cash.

One thing you can never get back is time; spend it wisely and continue your investing efforts while saving.

#4 Save Ferociously

Whether you're saving for a one-month, three-month, six-month, or twelve-month emergency fund, you must attack the goals aggressively.

Funding this emergency fund will be your chief aim/focus.

#5 Decrease My Expenses

If you want to save a one-year emergency fund, you will likely need to decrease your expenses unless you bring in enough additional monthly income.

But this will be a temporary decrease until you reach your goal.

#6 Focused Discipline

You're going to experience temptation when you see a wad of money piling up. It's tempting to want to spend and blow up your savings for a real emergency, a faux emergency, a vacation, a new gadget, etc.

You might even tell yourself that you'll pay yourself back.

One of the easiest ways to prevent yourself from dipping into your emergency fund is to put your money in an account that takes at least a few days to liquidate, that way you can't access the money immediately.

You want your emergency fund to be accessible, but not TOO accessible.

After time passes, you will formulate the necessary discipline required and no longer be tempted to touch it.

Or maybe you won't. In that case, keep the money in places that are harder to touch.

At the end of the day, if you want to stop going into debt any time there is a real emergency, you will adopt the required discipline, so you don't continue repeating the same patterns that keep you financially stuck.

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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.