Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” –Joe Biden

Building a small emergency savings fund is the key first step to start building a solid financial foundation following the completion of your bankruptcy case.

This emergency savings step in your journey toward achieving financial independence is vital to your success, and should be the first thing you target after bankruptcy.

I have heard hundreds of stories from people over the last several years regarding what caused their financial ruin, and ultimately led them to filing for bankruptcy. Often, one would ask that I help them file for bankruptcy after a difficult divorce, or after experiencing a health-related emergency that led to unexpected medical bills.

Despite the many different stories I hear from folks they nearly all share one common characteristic…they never set aside a rainy day emergency fund.

When you are living paycheck to paycheck without emergency savings, even a small auto repair can be the difference between “just getting by” and falling hopelessly behind on your monthly bills.

Falling behind on your bills is really easy to do, but getting caught up after falling behind is much more difficult to accomplish.

There are occasionally going to be unexpected expenses, and a plan for reaching financial independence would be incomplete without a mechanism for addressing these expenses.

If your car breaks down, the air conditioning unit in your home needs repaired, or your kid breaks their arm playing basketball, you will have some cash readily available to take care of the out of pocket costs.

When in the past, you may have relied on credit cards to get through these unexpected life events, now you will be sure to plan for these type of inevitable mishaps that arise in everyone’s daily life.

How Much Do You Need?

That’s a very good question. I am sure you have read articles by the so-called “financial experts” that suggest you should have 3-12 months of monthly expenses set aside in an emergency fund.

That is certainly fantastic advice. If everyone had 12 months expenses set aside in an emergency fund bankruptcy lawyers would go out of business as nobody would need to file for bankruptcy relief.

However, I expect you are in a difficult financial position at the moment, and extra cash is hard to come by.

We are not trying to set aside an emergency fund to finance your life for long periods of unemployment, we are simply trying to prepare ourselves for unexpected expenses that occur during our twelve month credit rehab process.

I encourage you to set aside $5,000 for your emergency savings fund. This amount is enough to cover most auto deductibles, simple home repairs and medical insurance deductibles and co-pays.

I know that for you, saving even that amount is not an easy task. Keep in mind however, you just received your discharge order from your bankruptcy case.

You have no more unsecured debt. I expect you are in the best position of your adult life to start saving some money.

Ways to Fund your Emergency Fund

There are many ways to create extra money to fund your emergency savings, and some will take longer than others.

I suggest doing whatever is necessary to fund this savings as quickly as possible, since the sooner you are prepared to get started with your credit rehab the sooner you will enjoy the benefits and savings from having a good credit score.

Start by taking a look around your garage and bedroom closets. If you are like me, there is undoubtedly tons of stuff contained in these places that are just collecting dust. This stuff has value, and can be sold to build our savings fund.

Do you have old exercise equipment, computer stuff, music CDs, DVD movies, books, kitchen appliances, which you do not use?

Heck, you may be able to fund your entire emergency savings by simply selling this stuff. Plus you will enjoy the peace of mind that comes with eliminating all of that clutter.

Craigslist is your friend. I am always stunned at how quickly I get stuff sold by posting items on Craigslist, and you can do this too to quickly set up your emergency fund.

You also can take on a temporary second-income source. I know this may seem like a pain, but cleaning a few houses, mowing a few lawns, or taking on a part-time retail job temporarily can really quicken up the rate of your savings.

If you have a skill or hobby you can use to make a few dollars, all the better. The point is to create money outside of your day-job to help speed up the funding of your emergency savings.

Whatever you choose to do, never borrow money for this purpose, and certainly do not take funds from a retirement account, 401k or IRA account to pay debts or fund an emergency savings.

Money placed into these types of retirement vehicles should not be touched, or borrowed from, for anything short of life-saving circumstances.

I am sure someone could tell me a story where they liquidated a retirement account for a justifiable reason, but in my several years doing consumer bankruptcy work I never heard one.

Your challenge is to establish an Emergency Fund of $5,000 as quickly as possible.

Do whatever it takes, and starting now!

Image Credit: