How to Build Up Your “Emergency Fund” in a Dismal Economy

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An emergency fund is an integral part of a healthy financial program. Unfortunately, saving the recommended 3-6 months worth of expenses can seem near impossible, especially now. The good news is anything in an emergency fund is better than nothing, and the sooner you start saving, the better prepared you will be down the road. To help you in boosting your rainy day fund, I have assembled a list of ways to free up cash now to expedite your emergency preparedness.

If you’re already facing a financial emergency, you will also find a list of alternate ways to get the cash you need now. You may also be interested in my article 7 Ways to Increase Your Cash Flow.

Get A Second Job: Depending on where you live, there are a variety of part time jobs that you can pick up to earn a little extra income to boast your savings. As the holiday season approaches, most parcel companies (UPS, FedEx, DHL, Etc) offer part time opportunities loading trucks, checking orders, and answering phone calls. Cleaning homes, or delivering pizzas are also popular among people trying to turn their financial situations around.

Get A More Economical Vehicle: If you are driving around in an expensive car that has become inappropriate for your financial situation, consider selling it and getting something a little more economical. Even if you have negative equity in your car, selling it typically will result in reducing your monthly payment, freeing up cash that can be used to shore-up your finances.

Have A Yard Sale: The “junk” that you have been storing in your garage, attic, and basement, might be worth more than you realize. Without little effort you could easily raise a couple hundred dollars (or more) selling stuff you haven’t used in years.

Sell Your “Toys” (Boats, Motorcycles, RV’s, Muscle Cars, Etc.): Most likely the value of these recreational items has taken a significant hit in today’s economy. The sooner you accept this fact, and offer a fair price for one of your “babies” the quicker you can get on with your financial life.

Sell Your High Value Possessions: Sacrifice is an important part of turning around one’s financial situation. If you need cash you may want to consider selling personal effects that have value like collectibles, musical instruments, sporting equipment, art, or other items of value that you may own.

Reduce Your Utility Bills: Contact your cable, Internet, and phone providers and tell them that you are considering an alternate service provider who is offering a better price. I recently got my cable company to honor a 6 month $29.99 service special that was “only” for new customers. You man also consider downgrading your service plan, or canceling it all together if you are desperate to free up cash now.

Be sure that you have quality term life insurance in place first, and then cash out your whole life policy. Not only will you get the cash “value” out of the policy, but your monthly life insurance premiums will drop by 60-90% as well depending on your health risk.

Establish a Home Equity Line of Credit (HELOC): If you have a good credit score, and a fair amount of equity in your home (a rarity these days!), you may be able to establish a HELOC loan from a local or national bank. Much like credit cards, a HELOC allows the borrower to spend what they need up to a predetermined limit. The fees on HELOCs are relatively low, and you only pay interest on the money that you withdraw. If you set up a $25,000 HELCO, and never actually take any of the money from the bank, you pay no interest (only the initial fee in most cases).

Borrow Money From Your 401(K) or 403(B): Most financial planners will advise you not to borrow money from your 401k or other retirement account with the concern that you may “miss out” on market gains. However, f you need cash and your financial situation leaves you few alternatives, borrowing money from your 401k might help you get your financial life back on track, or give you the security of having funds available for an emergency.

Cash Out Your 401K: In extreme cases, “cashing in” (liquidating) your 401K or 403B account can be a viable way of raising money for a financial emergency. However, understand that any funds that you withdraw will be taxed at your regular income tax rate. Additionally, you will be assessed a 10% penalty if the money is not used for a qualifying hardship as defined by the IRS.

Get A Cash Advance From Your Credit Card: Cash advances on credit cards can get expensive in a hurry. Typically, cash advances are subject to higher interest rates than your regular credit card purchases (20.9% and higher is normal).

Payday Loans: Payday loans are by the far the worst financial tool in the history of personal finance and should only be considered in the worst case scenario if none of the above options is a possibility. Interest rates range from 200% to over 1000% in some states. Payday loans might seem like a good temporary fix but they introduce a financial cycle that will become all but impossible to escape.

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