How to Develop an Emergency Financial Plan

With the unemployment rate and prices for goods and services increasing, it is becoming increasingly difficult to save money - and even harder to maintain and grow an emergency fund. But emergency funds are vital, and become critical when trying to survive the challenges of a tough economy. Without developing a plan, saving money and preparing for an emergency is impossible. So how do you make a plan on how to save, and how do you put that plan into action?

Determine Your Monthly Expenses

Before you can determine where you can save, you must determine where your money is already going. Take out all your reciepts and bank statements, and track everything - what you spent on food, gas, rent, electric, and other. Make sure to include everything and don't leave anything out, no matter how trivial it may seem.

Divide Your Expenses

Once you know where you money is going, you need to put your expenses into two different catagories, fixed expenses and non-fixed expenses. Fixed expenses are expenses that have to be paid and include your rent, car payment, insurance, student loans, and anything else that has a payment that can not be altered in any way. Non-fixed expenses are food, beauty products, toys for your pet, etc. In other words, these are the places you can save money by taking advantage of sales, clipping coupons, find at thrift stores, or even find for free.

Are You Living in the Red?

Most people do not realize how high their expenses are, and how much they spend on items they don't really need. And some have so many fixed expenses they are actually living in the red - and don't even realize it. Once you determine your monthly expenses and find you are living in the red, there are a few steps you can take. First you need to cut out all the non-essentials. Second, you need to cut down on the payments you are making on the essentials. For example, if you have a cell phone plan that has 600 minutes and you only use 400, switch to a cheaper plan. Go through every expense you have and ask yourself - do I really need this, and is there any way I can save money. Keep in mind this may take time because you will have to call companies to find cheaper rates, but a few hours on the phone can save you hundreds. If you can't cut the expenses any further, then it is time to start looking for extra income by finding a second job.

Stop Stockpiling

Unless the sale is something that can't be passed up, like buy one get one free or other similar sale on a necesssity - pass it by. When you are trying to save for emergency situations you are trying to save every penney in every place that you can. When you start to stock up on goods, you are usually buying them at normal prices or very low discount prices. And these are things you do not need at the moment.

Start Planning

This means making a list of things that you are out of, or about to run out of. Also, plan your meals at least one week in advance. By doing this you can condense multiple trips to the store into one large trip. Once you make a list stick too it - and don't buy anything that is not on the list. This is not only a money saver on neccessities, but saves on gas and time as well.

Set Aside a Specific Amount of Money

The easiest way to do this is to have your employer split your paycheck when it is direct deposited in your account. This way you don't see the money missing from your account. And what you do not see you do not miss. Or if you earn tips or get a paper check, put 10% into savings. Even though it doesn't seem like much, 10% can add up quickly. If you are unable to save anything, that is an indication that it is time for you to find a second job, another source of income such as working at home, or find a way to cut expenses further - which may mean finding a roomate.

Finding a Roomate

This will only help you if you know you are moving in with someone who is responsible, and will pay the rent and other bills on time. However, rent is the average person's largest expense. If there is a way to cut that expense in half, then do so. It will make things easier on you, and your new roomate.

How Much Should be in an Emergency Fund?

On average you should have at least six months income put aside for expenses. This is to cover yourself should you be unemployed for a period of time and unable to find work. This way you do not have to panic when the worst case scenario happens. Also, this amount will cover anything else that could possibly happen - such as an unexpected car expenses.