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

Emergency Fund

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 boost 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.

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 boost 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 more economical.

Even if you have negative equity in your car, selling it typically will reduce your monthly payment, freeing up cash that can be used to shore up your finances.

Have A Yard Sale

The “junk” you have been storing in your garage, attic, and basement might be worth more than you realize. Without little effort, you could quickly 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 essential 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. Consider selling your higher-value personal items on Craigslist or eBay.

Reduce Your Utility Bills

Contact your cable, Internet, and phone providers and tell them you are considering an alternate service provider 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 may also consider downgrading your service plan or canceling it altogether to free up cash now.

**If You Need Cash Now**

Cash in Your Whole Life (Cash Value) Insurance Policy

Cash Value (Whole Life) insurance policies are a foolish investment for most Americans. If you own one of these policies, there is a possibility that you will be able to cash it out.

Ensure you have quality term life insurance first, 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 HELOC fees are relatively low, and you only pay interest on the money you withdraw. If you set up a $25,000 HELOC 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 accounts with the concern that you may “miss out” on market gains.

However, if 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, any funds 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

0% credit cards interest-free loanCash 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 as Emergency Funds?

Payday loans are by far the worst financial tool in personal finance history. They should only be considered in the worst-case scenario if none of the above options are possible. Interest rates range from 200% to over 1000% in some states.

Payday loans might seem like a temporary fix, but they introduce a financial cycle that will become impossible to escape.

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