As I’ve talked about awhile ago in “Let’s Talk Money“, many American households would not have enough money to pay for an unexpected expense. According to The Associate Press-NORC Center for Public Affairs Research, two-thirds of Americans would struggle to scrounge up $1000 in emergency. That study includes high income earners as well.

If your car broke down today and you had to pay $1000 for the repair bill would you be able to? That car is vital to you getting to and from work, to make money, pay your bills, and drive home to see your family. What about your child’s ER visit? Kids will be kids and accidents sometimes happen. Would you be able to cover the cost of your child’s ER visit for falling out of a tree? Then, sometimes when it rains, it just pours…for days. You might find that your car broke down this week, then you had to take your child to the ER the following week, and then a week later you experience a severe windstorm where a tree unexpectedly falls on the roof of your house. Would you be able to cover any of these costs? Would you need to place some of these expenses on a credit card? Depressing and stressful right?

Now for the good news…every little bit helps. Even if you have $200 in savings, you at least have some financial cushion. Will you be able to pay for $1000 car repair? No, but you won’t have to scrounge up $1000 to pay for the car, you’ll only need to find the difference of $800 to pay for the rest of the repairs. If you have $500 in savings, you’ll only need to find the difference of $500 to finish the car repairs.

Still overwhelmed? Are you living paycheck to paycheck and looking at your savings account with a $0 balance, feeling defeated? Are you dreaming of a day when your savings account balance is $1000, but you just can’t even comprehend it right now? I remember one summer in college when I made the decision to stay in my college town to take a summer class. I had a job all lined up to pay for my apartment, food, etc. I’d have one less class to take in the fall, one of the hardest classes, so I’d be less stressed during the fall semester. It’d be great…or so I thought. My job fell through due to a hiring freeze and I still had to pay for the class, rent, and groceries that summer. I had bought a dining table to study at, but the only other piece of furniture I owned was a used futon which was my couch during the day and bed at night. I started looking for other jobs, but it just wasn’t working out, so I thought I’d focus on finishing my class then I’d start looking for another job. Come the end of the summer, the month I went back to school, I only had $54 to my name and still no job prospects. I was desperate. I was also stressed, due to a glitch in my college’s financial aid system, because the college could not see any payment from student loan servicer coming for the fall semester. That was a low point for me, and because I was so stressed, frantic, and desperate, I couldn’t see a way out. I just panicked. Sometimes in desperation, we are blinded by our own misfortune. Yes, we are often desperate enough to take desperate measures, but sometimes we get so focused on just looking far enough ahead to make sure we are able to pay the next bill. If only we looked a little farther down the road, maybe 1-2 months, a year, would we be able to anticipate some of the hurdles we might face and be able to plan for them, rather than catch us by surprise because we never lifted our heads.

So how can someone living paycheck to paycheck start saving for an emergency fund? Well, Rome wasn’t built in a day, and neither was a rainy day fund. If you have never budgeted before you are most likely spending money on unnecessary items, items you don’t even realize you are buying. Budgeting can certainly be very beneficial in helping create an emergency fund. You can read more on why I think everyone should have a budget here, but it does take some time and commitment and can be overwhelming in the beginning. My “rule” for saving for an emergency fund can be used as a stand-alone way to save money or in conjunction with budgeting. If you are new to this whole new world of money management, it’s best to start with baby steps and try not to implement too many new ideas at once, or it will only discourage you more.

So what is it?

Pay yourself first. Have you ever heard this phrase before? It gets thrown around quite a bit, but what does it actually mean? For those struggling to make ends meet every month, this may seem counterintuitive. I mean, there are bills to pay and mouths to feed, there’s no extra money laying around to pay yourself, right!?! Like I said before, money is still being spent on unnecessary items (unnecessary meaning not vital for your survival), even though you are living paycheck to paycheck. If you budget, this will be even more apparent. So by paying yourself first, you are basically setting money aside ahead of time (before any purchases are made or bills are paid) in order to prevent spending that money later without even realizing it. Maybe at the end of one month you have a few extra dollars to spare in your bank account, and you want to do something special so you take your family out for dinner. If you paid yourself first, you wouldn’t have had the option at the end of the month to spend that money.

Side note: Spending money on items that aren’t necessary to your survival when you are living paycheck to paycheck does not make you a bad person. It happens to ALL of us, and usually subconsciously (consumerism is the American way after-all). That extra purchase this week or that small gift next week really adds up without us even realizing it. I still have to check out the clearance section of Target EVERY time I go into the store, and sometimes I check out with items that aren’t on my list. I budget, I try to stick to my list, but I am only human…

So how much are we paying ourselves? Our goal is to save the equivalent of 1 hour of work per day. If you make $7 an hour, work 8 hours a day, 5 days per week, and get 3 weeks off for vacation, if you ONLY saved $7 per day on the days you physically work, then by the end of the year you would have $1715. That’s enough to cover the $1000 car repair bill. If you make $7 an hour and want to save $7 a day EVERY day, whether working or not, you’d have $2555 by the end of the year. If you get paid $27.4 per hour, and save $27.4 per day for 365 days, by the end of the year you will have $10,001 in your emergency fund. Sounds amazing doesn’t it!?!? Your goal is to get to 3-6 months of savings, so that in the event you lost your job, you would still be able to pay your bills and buy food for your family while looking for other work.

How are we going to pay ourselves? Well this can be done in a variety of ways. Each payday, you can transfer the necessary amount needed to fulfill the 1 hour a day rule into your savings account to get you until the next paycheck. If you get paid weekly, on payday you could transfer 5-7 days (depending on your goals) worth of money at a time. If you get paid every other week, you could transfer 10-14 days (depending on your goals) of money at a time. If that’s too overwhelming, you could transfer the necessary amount every single day into your savings. Some banks have limits on transfers though, so that’s something to keep in mind. If you are more of a hands on person, you could keep a large jar in your house and add physical money to the jar every day. I’d recommend if using the jar method to routinely deposit the money into your savings account to prevent large sums of money being left out in your home or apartment as your funds grow. Find the strategy that works best for you and your situation.

Take it one day at a time. Don’t think about the end of the year when you have “x” amount of dollars in the bank. Focus on today. Grab your jar and deposit your one hour of pay into it. Worry about tomorrow, tomorrow. A year is a long time. You might get distracted in the store and spend your one hour of pay you were suppose to deposit into the jar on that shiny discount item that caught your eye in the clearance section of target. Or you might have a legitimate necessity to purchase. Don’t get discouraged. Like I said, we are only human. If you focus on today and today only, you’ll still have more money at the end of the year in your rainy day fund than you did before you started.

What happens if at the end of the month you still don’t have enough money to cover your expenses? Well, to be honest, if you’ve hit a low enough point in your life to be motivated enough to do whatever it takes to make your payments on time, you’ll find creative solutions. Maybe you’ll pick up a part time or per-diem job for a little extra money each week or month. Maybe you’ll realize that you can survive without cable for awhile or cut back on your cell phone data plan since most places offer WIFI. Can you bike to work in the summer months to spend less money on gas? Maybe you haven’t been budgeting but want to see exactly where your money goes each month. If you want to try budgeting, see “Budgeting 101” for a free tutorial and download.

Lastly…what about your kids? You want to give them everything that you never had growing up. You want to buy them that toy or enroll them in all the extracurricular activities they want, etc. Well, I believe you should be honest with them. Explain to them why they can’t have (insert toy of the day) and what your financial goals are for now and in the future. Explain to them that this little bit of sacrifice in the beginning is going to reap huge rewards later, provide a better life in the long run, etc. Take this as an opportunity to teach your children about money and saving. Involve them, challenge them to do their own saving challenge with birthday money or their allowance. Depending on your child’s age, they may not understand everything fully, but I bet they will appreciate it later in life when they are able to.