Setting Up an Emergency Fund When You're Paycheque to Paycheque

If you're constantly struggling to make it to your next paycheque before running out of money, the idea of setting up an emergency fund, one of the fundamental building blocks of personal finance, can seem like a daunting task.

When you're walking a financial tightrope, the need to have a safety net is arguably greater than ever. So here are a few ideas to help you get started.

Prep Yourself Mentally

Maybe you don't need to literally talk to yourself in a mirror, or hire Al Pacino to re-enact his famous locker room pep talk from the movie Any Given Sunday, but you do need to dig deep and find the motivation to make a change. They say that if you want to achieve things you've never achieved before, you have to be willing to do things you've never done before. So pause, take a breath, and commit to an action plan.

The Obvious Advice First

If you've never put together a budget, then start there. There's no shortage of online resources to help you get started, but keep this in mind: If you want to know what your priorities are in life, look at how you spend your money today. The budget doesn't lie. If you say you want to set up an emergency fund and you aren't currently adding to one, it's not actually your priority. If you're not willing to trade off spending from somewhere else in order to do it, then whatever that "somewhere else" is, that's actually your higher priority. And if you're not good with that, make a change.

Get a Jump-Start

Like a car with a dead battery, it's possible to get up and running with jump-start. Many of us have lots of items lying around our homes we no longer use or need. Do you have old computers, smartphones, or other electronic items you've upgraded from, but still take up space? You might be able to convert those into cash. Kitchen appliances, maybe a treadmill, furniture, you name it — you might be able to find a buyer. A physical garage sale, or a virtual one on sites like Kijiji® or eBay® can jump-start your emergency fund and get rid of some clutter.   

Crash Test Your Money

If you have a dual-income household, ask yourselves what would happen if one of you lost your entire income. If you're on your own, it's an even scarier proposition. But it could happen. Running through an exercise like this can be eye-opening and may also provide you with some motivation.

There are more drastic measures, like selling your car, that you likely won't want to actually do during your crash test. Then there are strategies you could actually use because they're a little less final, like cutting your cable bill or reducing your Internet package and giving up your favourite streaming video service. There might be a moratorium on eating out and going to the movies. These are all things you could bring back at the flip of a switch.

This crash test of your finances can serve a few purposes: not only can it help underline why you want to be prepared for emergencies with an emergency fund, the money you save during the crash test can be funneled towards building up that emergency reserve in the first place.

Take a 60-Day Challenge

Most of us are capable of big behavioural changes for at least limited time periods. Like trying a new diet or exercise plan, we can do it, at least for a while. Try some deep cost cutting for the next two months, and if you can also find a way to increase your income, even better. Picking up an extra shift at work, or finding freelance gigs online can make a big difference. These days, people are looking for paid help with anything from proofreading, tutoring people with help on classes they're taking at school, buying amateur photography, writing snippets of code, and more. These mini, temporary gigs can also help fill the void created by not being able to marathon our favourite shows during our streaming hiatus.

These strategies can help get you on the right track to setting up an emergency fund when you don't have much flexibility in your current budget.

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Written by Preet Banerjee. This article originally appeared on Tangerine’s site: Forward Thinking.

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