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How To Pay For Emergencies Without Going Into Debt

having an emergency fund



It certainly feels like the economy is looking up for many Americans. While there are still workers in certain industries that struggle to find good paying jobs, investments are up, self employment opportunities are plentiful, and the world looks a bit rosier than it did a few years ago.

At least that’s what I thought until I saw this study from the federal reserve showing that half of Americans would struggle if faced with a $400 emergency expense! If you fall into this category, it’s important to figure out how to pay for emergencies without going into debt.

So Many People Can’t Afford Emergencies

I’m certainly not one to throw stones. Back in the day, we whipped out a credit card for most expenses, emergency or not, expecting that we’d make our payment at the end of the month just like everyone else. I had hoped that  the recession taught most of us that jobs can disappear at any time and an emergency fund can be the difference between inconvenience and financial ruin, but I think maybe I was wrong.

While this survey did have some positives, with the majority of respondents saying they are doing OK or better than they were last year, there were some eye opening points as well.

  • Only 47 percent of the 50,000 respondents felt they would be able to handle a $400 emergency expense with cash or a credit card that could be paid of at the end of the month.
  • 39 percent of respondents said the largest expense they could cover in cash or equivalent means was less than $100.
  • Not surprisingly, lower income people fared worse worse in this survey, but even those with high incomes are not doing that well. Astonishingly, 27 percent of people making $100,000 or more a year would not be able to pay cash for an emergency expense of $400!

People Are Still Not Saving Enough Money!

I’ll make a very educated guess and say that people who don’t have enough money, especially those making six figures, are either carrying too much debt or spending too much on non-necessities.

For a very short while during the worst of the economic downturn, it seemed people were starting to get the point about saving for a rainy day. With Americans now spending more money eating out than on groceries, new car sales at record highs, and retirement age increasing, it looks like we’ve already forgotten how quickly situations can change.

How To Prepare For Financial Emergencies

Thinking you won’t get hit with an emergency expense is foolish. Two weeks ago, we were dinged with an $800 car repair. A trip to the emergency room will cost over a grand. Even if a tree falls on your fully insured house, you’ll still probably have to come up with at least $500 for the deductible.

Accept that emergencies will happen and start planning. Most experts recommend having three to six months of expenses saved up in case you lose a job, but that can be overwhelming for people who have never saved. Start by saving $500 and work upward from there.

How Can I Find $500?

Living paycheck to paycheck often makes even $500 seem out of reach, but it’s probably not as hard as you think. Start tracking all money coming in and going out. The best way is to sign up for a website like Personal Capital or Mint because those won’t lie. Doing it by hand only works if you’re honest and actually save receipts and study all credit card bills.  I used to think we only spent $300 a month on groceries, but I was shocked to find it was often over $600! Once you have a handle on where your income is going, it’s easy to find ways to stop the leaks.

There are lots of ways to shave $$$ off your monthly expenses without causing shock and awe including:

  • Cutting $100 or more off your grocery bill by meal planning and minimizing food waste
  • Brown bag your lunch=$25 a week
  • Don’t eat out for dinner or cut back to once or twice a month=$100 per month
  • Trading cable for Netflix or Sling TV =$60-$100 per month
  • Drop the gym membership and work out at home=$25-$100 per month
  • Don’t buy clothes for the next few months=lots of $$
  • Skip the salon and use DIY  hair color=$50 per month
  • Turn your thermostat up a few degrees this summer=$10 per month

Pay Off and Avoid Consumer Debt

For those carrying credit card debt who can’t afford a $400 expense, it’s a vicious cycle. When emergencies arise, there is no option but to keep charging. For many, it’s not unusual to find credit card payments totaling more than housing or food costs combined.

Now that you’ve found that emergency $500, sock it away and continue to save until you feel confident the amount could cover common emergencies. Next, start to put that money toward debt repayment and make a point not to buy things you don’t have cash on hand to cover. You’ll never be free while credit cards control your salary.

Make More Money

You can save up an emergency fund by cutting back, but it goes many times faster when you also add extra income. I’ve been doing that for years through taking more days at work when offered and with online pursuits. It gets addictive to have bonus money, and it’s especially nice when you get to the point where your side income could cover a mortgage payment or buy groceries if necessary.

The amount of ways to earn extra income is limitless. With a functioning brain and the willingness to sacrifice a bit of free time, I guarantee there is something you can do to make more money. It might not be glamorous or long term, but that’s OK. If your answer to the question about paying for a $400 emergency expense with cash on hand was no, then you need to get your head out of the sand before a real emergency strikes.

Could you pay for a $400 emergency expense with money on hand? What is your best tip for building an emergency fund?



About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. My best tip for building up an emergency fund? Call your cable company and ask for a discount! In no time you’ll find yourself with $60 per month that you can then use for a rainy day.

  2. I couldn’t sleep at night without an adequately funded emergency fund. It seems like something is always popping up! We have about 6 months expenses in cash right now but it fluctuates because I allocate money elsewhere every few months or so.

    • We probably have too much in liquid savings, but something does always seem to come up. We had a leaky roof at one of our rental properties last week and it wasn’t a big deal because of our emergency fund.

  3. For me, by avoiding going to an expensive coffee shop like Starbucks would definitely save you a bunch. You can make your own coffee and still enjoy it.

  4. Like Holly, I couldn’t sleep at night without a fully funded EF. If I were telling someone to find ways to come up with $400 quick I’d use many of the same ideas – just start looking at your fixed expenses each month and find ways to reduce them through either asking for discounts or getting rid of those you simply don’t need.

    • I think we could easily slash off $400 if we wanted and even more back when we used to spend mindlessly. I could get by with a flip phone and the daughter wouldn’t die without dance lessons. I’m glad we are able to have the things we enjoy, but I would drop them in a heartbeat if we needed to.

  5. I have probably only had an emergency fund for the last 18 months or so – but in that time it has saved my bacon a number of times. One example was when my car needed replacing at short notice (I drive to work so without one I’m in real trouble!). Thanks to my emergency fund the problem was solved within 24 hours. Having a buffer like that definitely helps me to sleep better at night!

  6. Having a big emergency fund saved me from months of slow/non-exisitent work. Unfortunately it dwindled and now I have a little debt, but I’m working on fixing that. It does take hard work and sacrifice, but it’s worth if for the peace of mind.

  7. How depressing are those stats?! Heartbreaking, really. Though we think of ourselves as conscious spenders, we frequently find new areas where we can cut mindless spending. And we’re doing really well. Imagine how much mindless spending must be going on for those who aren’t taking a clear-eyed look at their finances.

  8. I very much enjoy having a well-funded emergency fund and I always recommend that everyone have at least something as well. You can build it up by cutting your budget as well as increasing your income. Well worth it!

    • Making money is really the way to get out of any financial jam, but most of us have something we could cut if we really put our minds to it. I would cut my gym classes tomorrow if I couldn’t come up with $400.

  9. I think making extra money is the best way to prepare for emergencies, but I’m totally biased towards making more money. If you need money ASAP you may need to go into debt, but it’s important to have a plan for how to pay off that debt.

  10. We definitely have a fully-funded emergency fund. It has saved us countless times and I have seen the aftermath of not having one too many times to ever be without one. It’s something I always encourage clients to have and some argue it’s not worth it until an emergency pops up and they are forced to use money intended for other priorities to cover a car breakdown or a lost retainer. If you need to build an EF fast, than I would first look at things to sell – hold a garage sale and sell higher priced items on eBay and/or Craiglist. That will get you started, then look at trimming any fat from your expenses and ways to earn more money.

    • I think we all have stuff we could sell and that is an easy way to get started on savings, as long as you don’t go out and replace whatever you just sold!

  11. A great idea for an emergency fund is a savings account or short term CD with an online bank (Ally, CIT, Capital One 360 (formerly ING Direct), really any of them). The APY is higher than your standard savings account, and because they are a little harder to access and likely to be unseen with your main finances, it makes them less tempting targets for cash to use on non-emergencies.

    And for the last few months, I’ve been brown bagging it to work. Any week where I don’t spend money on food saves me about $50 that week (though usually I’ll alternate between bringing food and eating out for lunch). I’ve also decided that one week per month, I will have a spending fast where I don’t spend any money on anything that isn’t transportation or some sort of obligation. It’s amazing how much money stays in your pocket when you do that.

    ARB–Angry Retail Banker

    • A huge part of it is paying attention. I do like to eat out or buy a soda to get me through a rough day, but for the most part, I can really turn spending off if I need to. So many people piddle money away and have no idea where it went.

  12. I am amazed at how many people making 6-figures do not have an extra $500 to do something with. What if a deal of a lifetime came up, and you did not have the $500? Maybe an unexpected tax bill, an assessment or a buy of a lifetime.

    I could certainly pay an extra $400 (or $400,000)… If I had to. I paid off a $188K mortgage last year with excess cash.

  13. Best advice I ever had from an insurance broker was to get accident insurance because we have cheap insurance with a high deductible. It’s saved our butts twice now. Just last month our college age son broke his elbow and had to have surgery. Total bill — over $40,000! and that was just a day surgery. Accident insurance is going to cover the $15,000 that I owe and it only costs me $57/month for the whole family. If you have crummy insurance and kids I highly recommend it.

  14. When Vonnie and I were paying off our credit card debt, I was amazed at how little we could live on if we really wanted to. Cutting everything down to the bare necessities for just a month would put together a pretty good e-fund for most people.

  15. Alot of good tips on how to gather cash for an emergency fund . Don’t have one but today I start putting one together plus I’m putting a budget together and sticking to it. As for selling anything im not. I might need it. Thanks for the useful tips.

  16. I heard about one woman who could only afford to put $5 away each month. But she kept at it, which is what matters. She eventually reached her goal.

    We can handle a $400 emergency, though I’d be upset to take the money out. We have some big bills that we’re saving for. Still, when we had to pay $250 for a broken window, it was nice to have the money without fretting much.

  17. We could easily handle a $400 emergency expense (like that A/C refrigerant we needed a couple weeks ago) but our emergency fund has gotten smaller over time and it’s one of our goals to replenish it. I think that’s an important aspect, as you’re never really “done” with saving up for emergencies. They happen, your emergency fund saves you, and then it’s time to start putting money back into it. One of my favorite ways to save is to find free entertainment, whether it’s borrowing DVD’s from the library or attending free local concerts, there’s plenty to do if you look for it.

  18. I’m still working on building up my emergency fund, but I’m glad I at least have a little, tiny, baby one in the works 🙂

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