Have you ever had your car break down? Have you ever had a water heater burst? What about an Air Conditioner that just stopped working in the middle of summer? If you said ‘Yes’ to any of these, you are not alone. I think you would be hard pressed to find somebody that has not had some sort of emergency situation happen to them in the past 5 years. This being said, there are many ways one can approach these situations from a financial perspective:
Put it on a Credit Card
According to a recent article at Bankrate.com, the average annual interest rate of a NEW credit card is 12.4%. Also, according to IndexCreditCards.com, the average household carries $7861 in revolving credit card Debt. This tells me that many people are using a credit card to cover their emergencies and that they are not paying it off every month. This, in turn, means that people are paying high interest rates just to cover life’s curve balls that are thrown at them.
Take out a loan
According to MSN Money, The average personal loan rate is 12.52%.This would put us in the same boat as if we used a credit card, in fact we would even pay a little more in interest going this route.
Pay Cash for it
I don’t know about you, but I have never paid interest on using cash. In fact, if you have a good reserve of cash in the bank you can make money on it while it just sits there. This seems to be the best course of action, put money in your pocket instead of another persons pocket.
This being said, you are probably wondering, “That is great in theory, but how do I get enough cash in the bank to cover an emergency if it happens?” Well, here are 3 things that I did that will be able to help you get to the minimum $1000 in the bank:
1. Sell stuff on Ebay and Craigslist
We were able to sell a ton of stuff online to get money for our emergency fund. You would be amazed at what kind of money you can get from selling Books, Movies, and Clothes that you dont need or use anymore.
2. Cut Your Expenses
We canceled our cable, stopped eating out as much, and changed some of our entertainment habits.
3. Combine Expenses
When we first got married, we had separate accounts for almost everything. We then combined our cell phones, car insurance, and life insurance providers which drastically reduced our expenses
A fully funded Emergency Savings Fund should have 3-6 months expenses, but you’ve got to start somewhere. Get $1000 in the bank and then come back and visit my next blog on the Debt Snowball made famous by Dave Ramsey.