An emergency fund is a lump sum of money that should pay for three to twelve months worth of living expenses. The idea behind the emergency fund is that you have easily accessible money in case of an unexpected situation that keeps you from working and earning money; or for expenses that come up you hadn’t planned for.

Most people understand the value of having an emergency fund – but it’s not easy to create when you’re broke or living paycheck to paycheck. According to researchers at Ohio University – only about three in ten households have an emergency fund that would hold them over for at least three months. ACNielson polled families and discovered 28% of American’s live paycheck to paycheck, with no savings at all – and SMR Research found that 43% of households have less than $1,000 saved.

How do you save money for emergencies when you’re barely paying your living expenses week to week? Can you save an emergency fund if you’re broke? While it may seem impossible to save money when you don’t have a penny left at the end of each month, you are exactly the type of person who most needs an emergency fund. If you should become ill or injured and unable to work – where will the money come from to pay for your current living expenses? What if you have medical expenses you didn’t count on, or your car breaks down and you need it to get to and from work?

How to Start an Emergency Fund
Even people who are “broke” can often find ways to cut back their day to day spending and contribute the savings to an emergency fund. Take a close look at your spending to see whether or not you have areas that could be cut back. For at least one month, write down every penny you earn and every penny you spend. At the end of the month, highlight any spending that wasn’t a necessity – gum or coffee at the gas station, take out or restaurant meals, the cable tv bill, etc. Consider your expenses carefully and decide whether you can reduce them, even if only temporarily, to get some money in the bank. Maybe you’ll reduce your cable tv subscription to a lower package, or stop eating meals you don’t make yourself. Whatever changes you decide to make, put the difference in money into an emergency fund immediately (otherwise it will be absorbed back into your budget and you still won’t have an emergency fund despite cutting back your expenses!)

If your budget is already stretched to the absolute limit and there is nothing you can cut back or stop to free up some money, consider some of the following for starting an emergency fund:

Get a part time job: true, no one really wants to work more than one job. If you are serious about getting money into an account for emergencies or eliminating debt so you have more money month to month – getting a part time job temporarily may give you the extra cash you need to make it happen.
Start a change jar: if you’ve never had a change jar, you might be surprised at how quickly it can build up to substantial savings. At the end of each day, empty your pocket, purse and wallet into a jar. Any time you have change, throw it into the jar. After a few weeks, you could have a couple hundred dollars saved and never even miss it.

Deposit unexpected earnings or gifts: most people receive money unexpectedly from time to time – whether it’s a job bonus or a gift from grandma. Whenever you receive money outside your normal income, deposit it immediately into your emergency fund.

Save your tax refund: if you are used to getting a decent tax refund every year, instead of using it for a vacation or a new TV, deposit it into an account to start your emergency fund.

Sell everything you don’t use: take a walk through your home, basement, garage, attic and anywhere you store stuff. How much of it do you need or use on a regular basis? How many of the items stashed in closets will you ever use again? Take an honest assessment at the “stuff” you have, and decide whether you are ever going to make use of it again. It may be worth more to you in the form of cash in a savings account than as clutter around your home. Try sellign things you don’t need or use on eBay or in a yard sale.

Set up an automatic transfer: open a savings account that allows you to transfer money from your checking account. Once it’s open, create an automatic transfer every pay day from your checking account into your savings account. Even if you live paycheck to paycheck, you can do this with a small amount and not even realize it’s missing. Start with something as small as $2 or $5 a week if you feel like you can’t afford to save money. Don’t forget to deduct it from your check register, but beyond keeping track of it so you don’t accidentally overdraw your checking account – don’t think about that $2 or $5 a week. It’s not a lot of money – but it’s more than you would have saved if you hadn’t set up the transfer! Also, once you get used to the small amount, gradually increase it by $1 or $2 a week and see if you can maintain your budget – you might surprise yourself.

The best gift you can give yourself is financial peace of mind – get in the habit of saving a little here and there and when the unexpected expense or emergency occurs – you won’t put yourself into deeper debt by having to use a high interest credit card.