Latest posts by R.J. Weiss, CFP® (see all)
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The math behind building a 3 month emergency fund in 180 days is simple.
You must live on an average of 50% of your income. If you can do that for six months, you’ll have built up 3 months worth of savings.
While the math is simple, being able to live on 50% of your income is a challenge. Especially, for those living paycheck today.
While it’s a challenge–it is possible.
The good news is you don’t have to figure everything out today. You have six months.
When you’re trying to build up an emergency fund, there are two ways to attack the equation:
- Spend Less
- Make More
It’s best to go in with the mindset that the ability to spend less and the ability to make more is a skill.
A skill you can build.
There are things you may be doing in month five you had no clue existed today. Yet, if it wasn’t for your ability to build the skill today, you would have never got there in the first place.
The end goal here is to build a three month emergency fund.
The path to doing so will be bumpy. In the first 90 days, you might only save 20% of your income. In month three you may discover a better way to make money. For the final three months your income may skyrocket.
What’s important is to know the destination. The path will change but the target doesn’t.
How To Build Your Frugality Muscle and Money Making Skill
In the first month, what you want to focus on is gaining momentum. Chances are you’re not going to cut your expenses in half.
You want to take advantage of the easy wins. The wins that will give you a lot of reward for little effort.
One thing you can do right now is start lowering your grocery bill is to use the Ibotta app. With Ibotta you can use their digital coupons to save on essentials. There’s also a $10 welcome bonus.
As for making money, the easiest thing you can do is to complete online surveys.
How It Works: Swagbucks is a favorite of mine, as well as a favorite of many readers here. Not only do they offer a wide range of surveys that pay cash, you can earn points for the everyday things you do online like searching, shopping, and watching videos. In total, Swagbucks has paid out over $187 million in rewards. Even if you’re not interested in doing surveys, it’s still easy on the platform to earn decent money with what you’re already doing online today.
Payment Method: Redeem points for Cash through PayPal.
Sign Up Bonus: $5 Just For Signing Up!
How It Works: YouGov is one of the world’s largest research companies with over 5 million members worldwide. Most surveys take between 5-10 minutes and earn you 1,000 points ($1 is equal to 1,400 points). You simply sign up, then get personalized surveys sent to you each day.
Payment Method: Points to Cash through PayPal
Sign Up Bonus: 2,000 Point Signup Bonus
How It Works: MyPoints is another large survey site, owned by the good people who run Swagbucks. Founded in 1996, they’ve paid out over $236 million in cash and rewards. You can earn points through surveys, plus a number of other ways like watching videos or testing games.
Payment Method: Points to Cash through PayPal
Sign Up Bonus: $5 Bonus for first 5 surveys
Strategy # 2 – Freelance To Earn More Money
To start a business that sells a physical product takes time and money.
To start a freelance business, one in which you’re selling your skills on a per hour or per project basis, takes little time and little money.
Earning money freelancing is a lot easier than you think. You don’t need a business plan, you don’t need to invent anything.
You need only a skill that is valuable and a client willing to pay you.
There are hundreds of ways to make money freelancing. So, if you don’t have a certain skill in mind, such as graphic design or writing, that’s OK.
I prepared a well laid out plan for you to get started freelancing. For inspiration, you can see how I went from beginner to earning over $100 an hour writing and designing landing pages.
Earning an extra thousand dollars a month is very doable for the beginner in even the first few months. Even if you already have a full-time job.
- 200+ FREELANCE WRITING niches (and sub-niches) to Chose From
- 150+ VIRTUAL ASSISTANT services that you can offer today!
- How to Start Your Own Bookkeeping Business & Earn $60+/hr in 10 Weeks Without Going Into Debt
Strategy # 3 – Refinance Your Current Debt
For any debt you do have, you want to have the lowest interest possible. A low interest rate, combined with an aggressive payoff plan gets you out of debt in the quickest way possible.
Without a large percentage of your income going towards repaying debt, you can build considerable wealth fast. Most importantly, give yourself more freedom.
For those with debt, there are a few different options here:
- Credit Card Debt – Find a card with 0% transfer balance with a low interest rate.
- Student Loans – Refinance your student loans to a lower rate with companies like Sofi and Credible (See my review on Credible).
- Mortgage – Monitor interest rates (as I write this in March of 2017, they’re increasing) overtime. If you can find a cheaper rate, go for it. In addition to student loan refinancing, SoFi offers very low mortgage rates to qualified borrowers.
Strategy # 4 – Sell Your Car, Pay Off The Debt, & Buy A Cheaper One
One of the biggest reasons why many of us can’t build an emergency fund in the first place is car payments.
We spend an obscene amount on cars.
Due to the quality of cars being made today, a dependable, lower mileage car can be had for around $5,000. Yet, there are those in debt driving around cars worth over $20,000. Even worse, paying high interest loans on that debt.
If you have more than $5,000 of equity in your car, it may be best to sell it and buy a cheaper one.
For example, say you have a late model Toyota worth $12,000. You sell that car and buy a bit older model for $5,000.
That’s $7,000 you can put towards your emergency fund. That may even be enough to get you to your goal in 30 days.
Strategy # 5 – Maximize Earning Potential Of Your Primary Job
So, far we’ve talked about ways to make money outside of your primary job.
But, what about earning more from your primary job?
There’s three strategies here to earn more money.
- Ask for a raise
- Ask for more hours
- Find a job that pays you more
All three are smart options not just for the goal of building an emergency fund but anytime.
Doing the work to negotiate a raise or finding another job is a high paying activity. If you took 20 hours to find a new job and got a $10,000 annual raise, that equates to $500 an hour.
Summary of How To Build A 3 Month Emergency Fund In Six Months
On this journey, the most important aspect is mindset. Both saving money and making more is a skill. A skill that you can grow overtime.
Start small today. Build your skills a day at a time.
In six months, you’ll be glad you did.