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Is Your Money Ready for an Emergency?

The following post is from Christina of Northern Cheapskate:

Emergency fund
photo credit: Tax Credits

The past few weeks have been a lesson in just how important it is to have money ready for an emergency.

We’ve had our share of car repairs, home repairs, and doctor bills.  Just days before we left town to go to a work-related conference, we scrambled to hire a contractor who could repair our garage’s unexpected structural problems before winter.  While we were out of town, we got the message that there was more damage than we had thought, and the already expensive repair would cost more.

I was upset, yes, because, who wants to spend their money on things like that?  And yet, there was a sense of relief that we would be okay. We had the money in our savings.  Things could have been much worse.

But now that the bills have all been paid and the dust as settled, we’re not as ready for the next unexpected emergency.  So we’re taking steps to replenish our emergency fund.

Finding Money to Save

Our savings took a major hit with our garage repairs.  Since none of the trees in our yard are money trees, we know that it’s going to take a bit of time to recover.

Here are a few ways we’re finding money to put into our savings:

  • Cutting out memberships and subscriptions.  We cancelled our gym membership (which we weren’t using anyway) and have stopped renewing magazines and other recurring subscriptions that aren’t a priority).
  • Significantly cutting back on eating out.  We have been making our meals at home.  Rather than going out to lunch when I run errands in town, I’ve started to run errands early in the morning so that I’m home by lunch.  We are only going out if there is absolutely no other way around it, and when we do, we try to save money doing it.
  • Making economical meals from home.  I’m shopping with coupons, using veggies I grew in my garden, and buying more store brands.  We’re using meat as a condiment rather than the main entree.  I’m working on drinking less soda (ideally cutting it altogether!). We’re relying more on recipes like those from The $5 Dinner Mom One Dish Dinners Cookbook.
  • Boosting our income.  My husband and I are both writers, and we’re always looking for additional freelance writing opportunities.  I’ve also been selling items and taking online surveys to make some extra cash.

Other Ways to Prepare for a Money Emergency

  • Make sure you have adequate insurance coverage.  Make sure that you have adequate home, automobile, medical and life insurance.  This is one area where you should not skimp.  A health scare or an accident can be devastating if you have little or no insurance coverage.
  • Raise your deductibles.  Raising the deductibles on your insurance policies can help reduce your monthly insurance premiums.  Tuck the savings away for a rainy day.
  • Put some services on hiatus.  I’m not suggesting you stop paying your bills, but if you need to save some money, consider contacting companies and asking to put your service on hiatus.  For example, you can ask your satellite television company to put you on hiatus for a few months.  You can resume the service when your finances have gotten better.
  • Adjust your tax withholding.  Are you getting a big tax refund every spring?  Stop! Adjust your tax withholding information so that you keep more of that money in your pocket each payday.
  • Reduce contributions to your retirement funds (temporarily).  When you’re saving for the future, compound interest can be a very good friend to your finances.  But if you are forced to plunk down a credit card every time you have an emergency, it would be better to curtail some of those retirement contributions until you’re back on your feet with a solid emergency fund.

Making Your Money Accessible

There’s no point in having an emergency fund if you are unable to access it in an emergency.  Your emergency fund should be only for emergencies, so make it easy to get to when you need it, but not so easy that you treat your wants (hey, that dress is on sale!) as emergencies.

Put your money in a savings or money-market account and make sure that you only touch it in a real emergency.  If you have to, put the money in an account in the next town so that you won’t be tempted to take it out for non-emergencies.

You could probably earn more interest on your money if you put it elsewhere (like in CDs or mutual funds), but you really need this money to be easily accessible, without the fear of expensive fees or penalties.

A New Attitude Toward Saving

We’re debt-free except for our mortgage, but with all of the money going out lately, it’s not very hard to imagine how easy it would be to get into money trouble.

So, we are treating our depleted savings as if we had borrowed money from ourselves. We’re applying all of the same frugal living tips we used to get out of debt to pay ourselves back.  We’re rebuilding our savings account and preparing for the next emergency, whatever it may be.

Is your money ready for an emergency?  How do you prepare?

Christina Brown is the creator of Northern Cheapskate, a blog dedicated to frugal living through coupons, freebies, and money-saving ideas. She lives in the rural north woods of Minnesota where she clips coupons, pinches pennies, and chases her three boys (a 7-year-old and twin 5-year olds) as a stay-at-home mom.