Do This One Thing If You Can’t Afford a Financial Emergency Right Now, According to Rachel Cruze
Written by
Nick Perry
Edited by
Levi Leidy
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A third of Americans say they cannot afford a $400 emergency expense in cash, according to research from Empower. That’s an astounding number that reflects the financial challenges most Americans are facing today. Unfortunately, life can be unforgiving, and just because you can’t afford a financial emergency doesn’t mean you might not experience one.
That’s why financial expert Rachel Cruze insists on the importance of an emergency fund. An expert at financial firm Ramsey Solutions, Cruze tells her more than 600,000 followers on Instagram that now is the time to start building an emergency fund.
Her No. 1 solution to prepare for a financial emergency is simple.
How To Build an Emergency Fund
Cruze’s biggest tip for building an emergency fund is to start selling things you don’t use. As she puts it, “Look around your house and think, ‘What crap do I have that I don’t use and that I don’t need?'” Turning those items you don’t want or need into cash will give you a buffer to pay off surprise debts like car repairs, medical bills or even semi-planned expenses like books for school or an increase in your phone bill.
Cruze notes that there are many things you can do to cut back on your spending, like picking up a side hustle or dining out less, but says, “Fast cash is what you need if you’re in that position [of not having an emergency fund].”
Some of the items Cruze recommends selling include:
- Exercise equipment
- TVs
- Clothes
- Shoes
With tools like Facebook Marketplace, Craigslist and Poshmark, it’s easy to turn the belongings you no longer want or need into cash.
How Much Should Your Emergency Fund Be?
Cruze notes in the caption of her post that a Ramsey Solutions study found that 34% of Americans have no savings at all. To gain a measure of financial peace, Cruze recommends selling enough items to secure a $1,000 cash emergency fund. That’s the first step to taking better control of your financial health.
4 Reasons To Have an Emergency Fund
Many Americans don’t have an emergency fund, not because they don’t want one, but because it’s difficult to build one. Nonetheless, it’s imperative to prioritize your budget to build up an emergency fund for several reasons.
Preparation
Life is unpredictable. You can’t see the future, nor can you plan for every monthly expense. In the caption of her post, Cruze writes, “When you make a budget each month, you’re prepping for all the expected expenses that will come. When you have an emergency fund, you’re prepping for all the unexpected expenses that might come.”
Unexpected expenses always come. Some may be smaller than others, but every expense is more manageable to cover when you’ve planned for the unexpected.
Saving Money
Many Americans choose to use credit cards as an emergency fund. Cruze strongly advises against this strategy because credit cards charge significant interest. If you couldn’t pay for the emergency now, why would you be able to pay for it in full (plus other expenses) a month from now? With interest charges, paying for an expensive emergency with a credit card may cost you a lot more in interest in the long run.
Staying Out of Debt
Cash in hand will help you pay off emergency expenses in full and avoid debt. Again, this will save you money on interest payments in the long run while also avoiding additional consequences of debt. Debt hurts your credit score, which may impact your ability to borrow money to buy a car or even rent an apartment.
You’ll Feel Financial Peace
Ramsey Solutions has found that 54% of Americans worry about their financial situation daily. That’s an unhealthy, stressful way to live. A cash emergency fund can help alleviate some of that stress. When you’re prepared for the unexpected, you can live a little more worry-free.
As Cruze says, “Your grandmother probably called her emergency fund a rainy day fund, and with good reason! It’s going to rain. And sometimes, it’ll flood. With an emergency fund, you’ll be ready.”
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