As soon as I graduated from university, I moved to New York City to start my career in the Big Apple working for the largest financial institution in the world. That was the good news.
The bad news was that my starting salary barely covered my rent and groceries, and I was 3,648 miles away from my home in Peru.
Every time I received my paycheck, I had to make sure I didn't spend a cent more than the number on the check.
But then, one day, my employer announced they would merge with another giant bank and all positions were at stake.
What would I do if I lost my job and my income, I wondered?
That was the moment when I started to develop my financial planning skills and learned by necessity how to build an emergency fund, even as the fire bells were already ringing.
Today, 28% of US adults have no emergency savings, according to Bankrate's latest Financial Security Index. Another survey by GOBankingRates demonstrates that 58% don't even have $1,000 in savings.
An emergency fund is defined as at least three to six months of fixed living expenses. If there was ever a time to need one, it's now. However, if you don't have one, you can still build it, no matter how tight your budget.
There are many ways to build an emergency fund depending on the situation you are in. However, it helps to first organize your finances and build discipline in this area.
To build your emergency fund, I recommend you follow these key four actions.
When I lived in NYC on a tight income, I bought a notebook with a calendar that I took everywhere. In this notebook, I wrote down every cent I spent.
In the calendar, I marked the days that the bills were due and set a schedule for shopping. I switched from credit cards to debit cards so I could avoid spending money I did not have. I also learned to live on the prior month's income to avoid overspending while also leaving a cushion.
On the last day of the month, I reviewed all of my expenses and categorized them into fixed essentials (food, home, internet, cell phone, insurance) and variables (traveling, entertainment, home improvements). I treated it like a report card; where could I improve and how could I get better?
The next thing I did to ensure this plan was going to work, and to avoid the illusion of extra funds due to bank delays from clearing checks, debits, etc., was to separate my checking from my savings account.
I also created an automatic monthly savings program that started with $50 and was later switched to $500. Then, I enrolled in automatic stock buying and later opened my first investment account.
With my finances organized, I then had space to find ways to generate income while pursuing my career. I got curious about the movement of goods between the US and Peru and, shortly thereafter, I started to import goods to the US with a family member.
No matter what your focus or reality, know you are not alone. Focus on essentials first: food, medicine, and most importantly your health and those you love. We will get out of this together. Declutter your finances and make room for the new world.