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Tips on Starting Your 12-Month Emergency Fund When You Have No Savings

On Behalf of Veitengruber Law | Aug 17,2021

Conventional wisdom about emergency fund savings used to be having three to six months of expenses stashed away to hold you over in the event of income loss or a costly emergency. But in the aftermath of a global pandemic and nationwide financial unrest, experts are now pushing their estimates for a healthy emergency fund to a whopping 12 months worth of expenses. For those who struggled to maintain a six or even three month emergency fund, a whole year's worth of expenses can seem out of reach. Let's take a closer look at how and why you should work to build a solid financial safety net, along with some of the most common concerns related to this topic.

1.   Do I really need to save up 12 months' worth of expenses?

As of June 2021, the average length of unemployment was just over 31 weeks, putting the average duration of unemployment past the three to six months of savings previously recommended. That being said, not everyone will have such a hard time finding employment. If you work in a field wherein it is notoriously challenging to find new work opportunities, you may in fact need to exceed 6-months of expenses saved.

If your household is relying on one income to pay the bills, a 12 month emergency fund can act as a second income if you face unemployment. That being said, there are many careers with ample job opportunities that will always be open for business—think about all the essential workers that continued to report to work throughout the pandemic.

2.   How can I build my savings when I can barely pay my bills?

Clearly, building up 12 months' worth of savings won’t be realistic for everyone. It can take a lot of time to generate that kind of savings and working towards that financial goal could take away from other worthy financial goals, like paying down debt or putting money into a retirement account. You can’t do it all, and while planning for the unexpected is certainly worthwhile, it shouldn’t come at the expense of staying in debt and missing out on retirement savings. Finding a balance that is right for you will look different with every budget. If you have a lot of debt and are living paycheck to paycheck, a three-month emergency fund is a great start for now.

3.   Help! I am really bad at budgeting!

Take a deep breath. First, you'll need to determine what your bare-bones budget is. This is not your yearly salary, but the amount of money it would take to pay your most basic bills over a 12 month period. Think about your mortgage or rent, your utilities, loan payments, grocery bills, etc. Determine the absolute minimum amount required to survive month to month and multiply that by 12 to get your target savings.

While you are looking at your budget to determine the bare minimum needed for monthly expenses, also look for luxuries (however small) to eliminate. Are you overpaying for convenient delivery services? Paying too much for extra entertainment channels you don’t even use? Overpaying for cell phone or internet services? It’s time to really examine your needs and winnow down any and all "extras" that you can survive without.

PLEASE NOTE: If you need help identifying expenses you could reduce, Veitengruber Law can sit down with you (in person, over the phone, or via video chat) to assist. Once we’ve zeroed in on the expenses that have some potential wiggle room, we can negotiate with your lenders and utility companies for lower prices, reduced interest rates, and more advantageous loan terms with lenders and utility companies on your behalf.

When you have a solid handle on your budget, determine how much money you can comfortably put towards your emergency fund each month. It may not be much and reaching your savings goal may feel impossible at first, but don't give up! Everyone has to start somewhere, and some savings is ALWAYS better than none. In addition to reducing your spending (as we detailed above), consider putting your money in a high interest savings account to accrue more interest. With consistency and discipline you will be able to achieve this admirable financial milestone!


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