How to Create an Emergency Fund in a Month

Many Americans are not prepared financially to deal with common emergencies such as home or auto repairs and unexpected illnesses or injuries. When these situations occur, they often resort to using credit cards to cover the expenses and in the process take on even more debt. Digging out from the debt begins to seem impossible. Most financial advisors suggest that people have an emergency savings that would cover three to six months of expenses in the event of an emergency such as unemployment, but now advisors such as Dave Ramsey are suggesting a short term or "baby" emergency fund of at least $1,000 that will cover some of the common emergencies mentioned above. Saving $1,000 to start your short term emergency fund can easily be accomplished by following the steps below.

Use your tax return

If you are expecting a tax return this year, put that toward your emergency fund. If your return is sizeable, consult the Withholding Calculator on the IRS website. Adjust your withholdings accordingly and put the additional money you receive each month toward your emergency savings.

Clear out your clutter

Do you have furniture, clothing, appliances and other items whose sole purpose is to collect dust? If so, consider de-cluttering your home and holding a massive garage sale. If you have used eBay in the past, you could also try listing some items there. This will require more time and effort because you would have to take photos, create listings for the items, and then ship them out. You would also have to pay listing fees. Craigslist.com is another option. You would still have to list the items and pay fees to do so, but you could save on shipping by posting in your area. Put all of the money that you earn toward your emergency fund.

Take on side jobs

Use your talents, interests, and creativity to take on side jobs for a short time. If you enjoy scrap booking and have plenty of supplies, create a card making or scrap booking group that meets once a week for a month. Charge a fee and help others create cards or scrapbook pages. If you enjoy shopping, look into becoming a mystery shopper. If you don't mind watching children, consider babysitting on the weekends to make extra money. If you love pets, consider working as a pet sitter or a dog walker. If you enjoy yard work and being outside, consider mowing lawns to earn some extra money. Commit to putting your extra money into your emergency fund.

Revisit your budget

Review your budget to look for leaks. Are there areas where you could cut back? Consider taking your lunch every day so that you don't eat out. Some people are able to cut $100 from the budget by doing this. Plan a menu and eat meals at home. This could potentially cut at least $100 more from your budget. Clip coupons to help cut down on grocery expenses. Check your thermostat and consider lowering the temperature for the heater a few degrees in the winter and raising the temperature for the air conditioner a few degrees in the summer. If you have a programmable thermostat, adjust the temperatures to accommodate for times when no one is home. Consider using an "envelopes" system where you only use cash to pay for purchases. After refining your budget, use the money that you have remaining at the end of the month to put toward your emergency fund.

Decide where to stash your cash

Some people choose to keep their short term emergency fund in cash so that it is easily accessible when needed. In Dave Ramsey's book The Total Money Makeover, he shared an example of a family who kept $1,000 in cash behind a picture frame where it was not visible but could be accessed quickly if they needed it. Other people create a savings or checking account at their local bank where they don't have the temptation to dip into their emergency fund for non-emergencies such as clothing needs, family vacations, and gifts. Another option is a high yield savings account which is offered by banks such as ING Direct and HSBC. The advantage to these accounts is that you can earn a decent amount of interest on the savings account and there is less temptation to use it for non-emergencies. The disadvantage is that it takes several days to transfer funds and so it is not easily accessible in a true emergency.

Decide what constitutes an emergency

Once you have created your short term emergency fund, it is important to carefully consider what situations would constitute an emergency. A budget shortage due to overspending should not be classified as an emergency. Neither should planned expenses such as routine auto maintenance. If you rely on your emergency fund for these situations, it will be gone before you know it. If you do have to dip into your emergency fund, work to replenish the funds as quickly as possible. Commit to making long term financial changes and sacrifices so that you can fund a long term emergency fund that will last three to six months. The temporary satisfaction that may come from a new outfit or a meal at a nice restaurant cannot compare to the peace that comes from financial security.