Squeaking By without an ER Fund

Everyone would love to say they have a cushy emergency fund or savings account they can dip into in case of an emergency. However, what people hope to do and the actual reality of the situation are sometimes on opposite ends of the spectrum. Good financial, common sense tells us that we should be saving 5 – 10%  of our income for emergencies, let alone another 10 – 15% for retirement or large purchases, like a house. But when you compare everyday expenses to modest incomes, sometimes it’s hard to find that extra cash to stash away.

Before I get into how to manage emergencies without an ER fund, let’s go over basic financial planning in a few simple steps. Obviously, recording income and expenses is a great first step. Before you can find that extra money to save, you have to know where your money is going. Next, reducing and minimizing the bills will help build a bit of a cushion in your budget. Finding ways in increase your income is also helpful, giving you a little bit more money to work with. Finally, automatically saving a set amount, no matter how small, each month will get you started on the right track.

But what if an emergency strikes before you’ve had a chance to let your ER fund grow? How can you get the cash to pay for a car repair, unexpected medical bill, or speeding ticket? There are ways to squeak by without an abundant emergency fund:

1. Ask for an extension due to hardship. In some cases, you might be able to postpone paying a medical bill or speeding ticket for a few months allowing you to save the money instead of having to take on debt. You might have to pay interest or a late fee, but it buys you a little time to “catch up.” Just don’t let a bill become delinquent! It can negatively affect your credit score.
2. Borrow from a family member. Depending on how proud you are or how many times you’ve been in a bind, you might be able to borrow from a parent or sibling. However, make the terms very clear. If it is a loan, be sure to pay it back in a timely manner, don’t burn your bridges! If it’s a “gift” from mom and dad, make sure you are thankful and borrowing doesn’t become a habit. You don’t want to become an economic outpatient case.
3. Use a low interest credit card or promotional rate. Depending on how much credit card debt you have, you might be able to use a low interest card or take advantage of a promotional offer to reduce the interest rate for 12-months. Say you have to replace the alternator on your vehicle, charging it at 2.5% for 12 months would be a low-cost option. The key to using promotional offers is to pay off the amount in full by the expiration date. If you don’t, you owe the entire amount of interest at the regular interest rate, and that can be expensive.
4. Take out a loan. Sometimes accidents happen that are completely out of your control. You may not have the available credit or resources to deal with the expenses. In extreme cases, you might have to take out a loan. Personal lines of credit from a bank are one option as are peer to peer lending. However, if you’re credit is less than stellar or even good, you might have fewer options. Payday loans and car title loans are available to people with limited credit resources. They require only minimal background information and some companies even offer quick loans online. Yet, these are very risky, expensive loans that should be taken extremely seriously. Have a backup plan to pay these off – take on a night job, babysit your neighbor’s kid, walk the neighborhood dogs, find ways to earn extra income to pay these off immediately!
5. Get your financial house in order. Being hit by a huge bill can be the wake up call one needs to get their finances in shape. No one likes feeling stressed out about money or wondering how to pay the next bill. Find ways to eliminate expenses and save money.

I had horrible financial sense in my 20’s and early 30’s. It took me years to figure out how to budget and save money. Yet, once I figured it out, made saving a habit (which I’m still working on!) and tracked where my money was going, bill paying became, dare I say, fun and emergencies are no longer fear inducing.

Was there a time you squeaked by without an ER fund? How did you do it?