Having 3 months worth of living expenses saved may seem like a distant dream for many, especially those who are just now embarking on their savings journey.
Regardless of where you find yourself on the savings spectrum, having a 90-day fund set aside is a goal you should set on your “to do” list. Why? Because life happens, and when you’re prepared financially, it’s much easier to deal with the financial blows like the loss of a job, broken car, unexpected home repairs, etc.
Did you know that in January of 2013, the average time to find new employment was 35.5 weeks? That’s almost 9 months! Picture yourself loosing your income even for a period of 3-6 months, then ask yourself, what would I do if that happened to me?
If you have absolutely no idea what you’d do, you came to the right place! We’ll try to help you put together a solid plan so you can have at least 3 months worth of living expenses set aside in order to deal with unexpected emergencies.
First Line of Defense: $1000 fund!
Many people never get to the point of having that 3-month fund because they constantly dip into their savings. In order to make progress on your savings goal you need to protect yourself from using that saved cash for purposes other than serious financial emergencies.
If you have no savings, make sure that you build a $1000 emergency fund first before you embark on your 3-month emergency fund journey. Having a designated emergency fund of $1000 will give you access to cash in case you need to cover a broken dryer or a blown tire. This should be your first line of financial defense.
Limit Your Access
Once you have your $1000, now it’s time to start building your 90-day fund. Here are some ideas on what you can do to prevent yourself from tapping into those savings:
– Instead of keeping those funds in a regular savings account, you may place them in a 6 month CD or in a money market account. This way the money is there, earning more interest than regular savings, plus you will be less likely to tap into that fund since cashing in your CD or money market account early would mean higher penalties.
– If you’re not willing to “lock” away your money for a season, you can open a savings account in a bank that’s different than the bank you use for your day-to-day expenses. “Out of sight, out of mind” is a great rule to apply when it comes to building your 90-day fund.
Depending on your monthly cash flow and debt situation, you may have to become very unconventional about “freeing up” or generating additional cash for the purpose of building your 3-month fund. If you’re willing to go above and beyond, here are few options to explore:
– If you’re currently renting an apartment or a home, but you have your parents living close by who have a large enough home, consider moving in with your parents for a season of maybe 6-12 months. Talk to them about your desire to become financially prepared and explain that this season of “rent-free” time would allow you to get your 90-day fund. If you do that (assuming you pay $800 a month for rent) you’ll have $4800 – $9600 in your 90-day fund! It may not be the most comfortable solution, but 6 months goes by really fast!
– Get a second job, if only for a season. Once again, this option is a tough one, especially if you have a family, but if you can earn an additional $500 – $800 a month, you’ll be able to quit your second job after a season, knowing you just sacrificed for a good purpose – giving your family the financial security and breathing room it needed.
– Quit cold turkey on all non essential spending (entertainment, cable, expensive cell phone plans, clothing, eating out…) take a look at your budget and eliminate, just on paper, everything that’s non essential to your daily survival. Add all of those monthly expenses and you’ll see how much you can save every month for the purpose of building your 90-day fund. Once you accomplish your goal, you can go back to adding some of those “perks” back in. Who knows, you may like your simpler lifestyle so much that you’ll stick with those changes for good.
The key to building your 90-day fund is first understanding the purpose of it, knowing how much you’ll need to set aside in it, and creating a plan of action. Create a plan that’s both realistic but that also will stretch you a bit. Set a doable deadline and commit yourself to executing the plan. If necessary, find an accountability partner that would join the challenge with you. It’s always easier to do something like this with someone else by your side.