How to build a $1000 emergency fund in 7 days!

by | May 10, 2021 | 1 comment

Having a stash of cash is a critical element of your financial health. It’s commonly known as an Emergency Fund. It is a buffer which provides you protection against an unexpected blow such as job loss, an emergency repair, or an unforeseen medical event.

Knowing that an unexpected expense cannot derail you is a powerful reason to have this fund. That is precisely why I call it a Sanity Fund. Words are powerful. Words communicate our intentions. To call something an emergency fund or a rainy-day fund is too negative a term. Hopefully, you will never have an emergency. That doesn’t mean you shouldn’t have liquid and accessible savings. You have these savings for your sanity, for your peace of mind.

Should you need to leave a job or a relationship because it has become toxic, knowing you have money will keep you sane and at peace. It gives you options. Everyone needs a Sanity Fund.

Let’s look at some scary statistics. 53% of Canadian and 63% of Americans are living paycheque to paycheque, and therefore, do not have a Sanity Fund.

It’s important to have at least 3-6 months’ worth of expense in your Sanity Fund. In other words, your Sanity Fund should be able to support you for 3-6 months if you were not able to work.

Where should you begin? Start by setting an achievable goal of saving $1,000 and build up from there.

Here is how to build a $1,000 fund over the next 7 days.  

Day 1: Open a separate account. Simply talk to your existing bank. Ask for an additional account which is linked to your day-to-day chequing account so you can easily transfer funds into this account. Name this new account “Sanity Fund Account.” Most banks will let you name your accounts online. All the money you are going to save over the next 7 days is going into this new account. This is going to be your Sanity Fund.

Day 2: Take a notepad and a pen. Walk through your home. Write down at least 10 things you are not using. Sell them on Facebook marketplace or Craigslist. Do you have pieces of furniture you do not use? What about that chair in the corner? Small appliances collecting dust in the kitchen cupboards? Baby clothes your kids have outgrown? Take good photos of your stuff and sell it.

Challenge yourself to earn $500 from stuff you do not need, use, or love.

Day 3: Look at your grocery budget. Do you have a budget? Take a full inventory of your pantry and fridge. Make a meal plan for the week using what you have. Only buy things you need to complement what you already have. Perhaps fresh produce. Get creative. Food is among top 3 expenses in our lives, only behind housing and transportation.

What about eating out or ordering in? How much are you spending in this category each week?

Challenge yourself to reduce your food bill by at least 25% this week.

Can you shave off $200 this week from food and put it in your Sanity Fund?

Day 4: Cancel subscriptions, apps, and other services you no longer need or value. Here are some examples to get you started. Do you pay for cable? Do you really need cable? Netflix and YouTube can give you all the entertainment you need.

Are you paying for multiple streaming services? Netflix, Hulu, Prime etc? Keep one and cancel the rest. What apps are you paying for?

How much money is slipping away each month? Perhaps $100? Add it up and put it into your Sanity Fund.

Day 5: Review your bank statements.

Review your bank statements. Are you paying monthly fees for your bank account? If so, call your bank. You should not be paying fees. Switch to an account without a fee or find out what balance you need to keep for the fee to be waived.

Are you paying unnecessary convenience fees? Such as ATM charges for withdrawing your money or overdraft fees? Eliminate these unnecessary charges and keep your money.

Day 6: Call your internet/cable/insurance companies. Negotiate your rates. Do your homework by researching what their competitors are offering. Be nice. Be firm. Ask for a rate reduction.

Take the savings from Day 5 and 6 and put it in your Sanity Fund account.

Day 7: Go on a Spending Freeze for the next 2 weeks. It means you cut out the unnecessary spending and focus only on the necessities such as your monthly bills and groceries. You will be surprised at what you uncover. You might be shocked at how small expenses are sucking up all your money.

Think of it as an act of self-care rather than deprivation. Instead of constantly looking for things to buy and consume online or in stores, take that time back. Use it to take care of yourself and your finances. Your peace of mind is the ultimate act of self-care.

This spending freeze can easily save you $300 – $400 to put towards your Sanity Fund.

What to do beyond Day 7:

You are on a roll. Don’t stop there.

Reflect on your learnings from the Spending Freeze and this entire exercise. Work on developing good financial habits such as tracking everything you spend.

Figure out what your currently monthly expense are. Work toward having a Sanity Fund of 3-6 months’ worth of your expense.

Dedicate your entire tax refund for the next year to go towards the Sanity Fund.