How to Prepare for an Income Emergency

If a financial calamity like a layoff or illness hit you today, would you be ready?

Most Americans — if they were honest — would have to answer “no” to that question. Bankrate recently reported that just 39 percent of Americans say they have enough cash in reserve to cover a $1,000 emergency.

But you can do better. Money Talks News founder Stacy Johnson recommends taking three crucial steps toward building an emergency fund:

Step 1: Assess your situation

goodluz / Shutterstock.com

Take stock of your income, bills and savings. Create a baseline budget — the absolute minimum required for food, shelter, utilities and debts, such as auto loan payments or minimum balances due on credit cards.

Compare this with your household’s current income. If you see you’re not going to make it, turn to a nonprofit credit counseling agency for some free help. Counselors can help you develop a workable budget, and maybe negotiate with your existing creditors.

Step 2: Track your spending

Rawpixel.com / Shutterstock.com

See where your money is going now. Our partner YouNeedABudget can help you build a budget that will ensure more of your money ends up in your emergency fund.

(Here’ an article about how it works.)

Once you have established a solid budget, look for ways to save. For example, take a bite out of food bills by cooking at home, bringing lunch to work and scheduling potlucks with friends instead of going out to restaurants.

Also, trim your transportation costs with a carpool, or walk or ride your bike more. “Do whatever you can to use that car less,” Stacy says.

Step 3: Trim your monthly expenses

Burlingham / Shutterstock.com

Take a look at your utilities, cable and phone bills. These may be small, but they add up. Look at each one individually, and see where you can cut.

For example, there is plenty you can do to cut the cost of cooling a home, from using awnings to turning up the temperature setting on your air conditioner. You also can cut the cable cord and find easy ways to save on your cellphone bill.

Step 4: Plan ahead

Bplanet / Shutterstock.com

You can also take steps now to prepare for any financial crisis that might lie ahead. For example:

  • Pay down debt so you can redirect your income toward savings.
  • Save any windfalls for a rainy day.
  • Refinance your debt to increase your cash flow so you can save more.

How have you built up your emergency savings? Share your tips in comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Popular Articles

5 Reasons You Should Not Delay Retirement
5 Reasons You Should Not Delay Retirement

Waiting until age 70 to retire isn’t for everyone. Could you be waiting too long to quit the 9-to-5 grind?

Don’t Want to Owe Taxes After You Die? Avoid These 17 States
Don’t Want to Owe Taxes After You Die? Avoid These 17 States

In one state, the tax man is especially tough on the estates of those who shake off this mortal coil.

My Secret to Cleaning a Dirty Microwave in Less Than 30 Seconds
My Secret to Cleaning a Dirty Microwave in Less Than 30 Seconds

The secret isn’t fancy or expensive. It’s not elbow grease, either.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Comments