63% of Americans don’t have enough in their savings to afford a $500 or $1,000 emergency. This article highlights how to create an emergency fund using a modern day version of pocket change (known as round-ups).
Dust off your old piggy bank and let’s start counting those pennies. Then, I want you to stretch your hand deep into the corners of your couch or your favorite chair and find all of that loose change that you, your family, and your friends have lost over the years. You are now well on your way to building that emergency fund that has always eluded you over the years.
NO, that isn’t quite what I’m going to ask you to do. I’m going to ask if you the following question — would you notice a difference if you paid $40.00 at the gas pump versus $39.24? Would you actually noticed the extra 9 cents deducted out of your checking account when you purchase that $5.91 value meal (now $6.00) from your favorite fast food restaurant? I would suggest that you would not even notice if somebody siphoned out a few cents here or a few dollars there over the course of several weeks and months. We call this round-ups. It is exactly this strategy that you can put in place to build that emergency fund and begin your journey to financial independence.
In a consumer economy with an “I need it now” mentality, most Americans are saving less, borrowing more, and maxing out their credit cards. The downfall to a buy now, pay later society is that most American’s cannot afford a $500 or a $1,000 life emergency. These little life emergencies that pop up without any warning are why most American’s continue to struggle in getting out of debt and breaking free to a more financially secure lifestyle.
Think about it. It’s a Sunday morning and you and the family are preparing to leave the house and you discover that your hot water heater has gone out. By the time you call someone that can come out on a weekend and install a new hot water tank, you realize your total bill is around $800 (or more). You don’t have the cash in the checking account so you charge it. It will probably take you a year or more to pay it off and will ultimately cost you around $1,000. These emergencies will always be unexpected! But, we don’t have to be unprepared and we don’t have to pay a 20%+ weekend premium or the interest charges to resolve these moments of crisis.
I would like for you to consider your ability to round-up all of your transactions (your credit card charges, your debit card charges, your checks or automatic bill pay through your checking account, etc.) and depositing this spare change into a separate account that can grow with the market and can be used as your emergency fund (or your vacation fund). This emergency fund will grow to $250 then $500 and then to $1,000 in a very short amount of time (I would estimate within a year). This new emergency fund will allow you to handle these life emergencies with more confidence and with less worry.
There are a few round-ups apps that are out there that can help you achieve this goal. I personally use Acorns*. Acorns is a round-ups investment account that can be established in about 5-10 minutes. This is a great first-step to begin your journey to a stress-free, worry-free life. If you are lucky enough that Murphy** doesn’t visit you, well you have just set up a great investment account that could grow with the market and help put you on the track of Financial Independence.
*Acorns is my “Invite Friends” affiliate link. If you sign up, I receive $5 in my Acorns account and you also receive $5 in your Acorns account. Please refer to their website for more information just in case they have revised their policy.
**Murphy, or Murphy’s Law, basically means “anything that can go wrong, will go wrong.”