How to build an emergency fund without racking up debt on a credit card

What does your emergency fund look like?

Borrowed money from family. Maxing out a credit card?

My favorite definition is a big ol' pile of cash.

Save

Following Dave Ramsey's baby steps, I am currently in the middle of building my full emergency fund by the end of 2015. My goal is three months worth of expenses in the bank for a rainy day, at least to put aside this year. Eventually, I will add to the emergency fund to have a total of 6-12 months saved.

Grateful I have been able to cash flow my husband's tuition for the last seven years, however I have been stuck with only able to put minuscule amounts towards increasing our full emergency fund since paying our last cent that we owed 5 years ago.

We have continued to live on a strict budget and I have a job where I earn more than what is needed to pay all our bills. This combination has allowed me to be successful in saving up for large tuition payments twice a year, just with not a lot of extra cash to have on hand. I am thankful that God has blessed us over the past few years with no major accidents or illnesses or huge financial blows and has provided all that we need during this time.

2015 needs to have lots of change clanging together as I hustle to bring in more income. Our base monthly expenses have been at a very reasonable level for several years and there is not much room any more to cut costs so I need to focus on giving myself a raise to change our current financial situation.

Emergency fund alternative?

Often when I go to the bank, the teller will ask me if I want to take advantage of the latest credit card offer to have it for emergencies. They are shocked when I say I would rather save up a big ol' pile of cash for emergencies instead of having a credit card.

I do not carry a credit card because I do not borrow money. Another reason is I can not afford a credit card, since studies have shown that you spend more when you pay with plastic as compared to cash. Every dollar earned has a specific purpose and I work diligently to keep our expenses down as much as possible to be able to continue to pay for school with cash while saving money.

Save

So that brings us back to the question of why not use a credit card for emergencies?

I would much rather have a large pile of cash on hand to deal with any emergencies that may come up for the simple reason that an emergency would be super stressful to deal with and I do not want to add more stress by racking up credit card debt.

Once the situation is behind us, I want to heal and recover as best I can without needing to scratch and claw to pay back the borrowed amount plus the additional 18% + interest accrued on a credit card. There is also the possibility of being able to settle medical bills for a lesser amount when you pay with cash.

Scarred into my brain is the stressful memory of having debt payments every month. Never again will I willingly take on that much financial stress.

Honestly, having a credit card would not really solve anything. Should something catastrophic happen, it would cause us to max out the credit card pretty quickly anyways and then where would we be? How many credit cards are needed to protect from a true emergency? I am not about to have a stack of credit cards on hand for an emergency so I can max out all 15 of them!

Paying for emergencies with cash helps me to consider if the situation at hand really is an emergency or if there is another way to pay for it without touching my emergency fund.

Preparing for a rainy day

The wise thing to do is prepare for an emergency by living on less than is earned and being diligent to put money aside. Another thing to consider is insurance polices to help minimize risk (we carry health, renters, disability for myself, and auto). I am not at all saying these polices would come to the rescue in an emergency, just some of our risk would be lowered.

Quite the interesting predicament I find myself in as right now I do not have the financial cushion which would be needed should something happen and I do not own a credit card. This is a situation I can not ignore any longer and I need to change.

First, I have to trust God with our health, safety, and provision for our every need. He has been so faithful all these years to always provide for us and I know He will continue to provide as He has promised to do.

The second thing that I need to do is to continue working hard, being wise with our spending, and intentionally saving everything I can. Our financial net worth has ebbed and flowed around the same baseline for the last five years.

It is time to change the amount of money coming in to make the needle move and prioritize building up our savings (in addition to saving for tuition) as quickly as possible.

My goal is to eventually build up a big enough pile of cash so that if and when emergencies may happen, they are simply major financial inconveniences, allowing us to deal with the actual situation at hand without crushing us with debt.

There is a lot of work to be done and time is certainly a factor. However, I am unwilling to compromise my personal beliefs against debt to get a credit card and place my trust in plastic to save us from a financial crisis.

Need ideas on how to build up your emergency fund?

TIP: Do you like the idea of earning cash back when you shop for groceries, eat at restaurants or shop online? With Ibotta, you can do just that!  Ibotta is an online app that gives you cash rewards when you shop online or scan your grocery receipts. It’s a simple way to earn extra cash!  Get a $10 bonus when you sign up with Ibotta!