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The $20 Challenge to build an emergency fund

$20 Challenge

More than 50% of US household can’t handle an unexpected $500 to $1000 expense without going into debt. Most families are living on the edge of financial stability where a car accident, appliance failure or emergency room visit would force them to borrow money and repay debt.

If you don’t have an emergency fund of at least $1,000, this $20 Challenge will help you build one in less than a year. To start, work backwards from the goal of $1,000. There are 52 weeks in a year. Using 50 weeks as a target allows a little buffer to reach the goal in less than a year.

$1,000 / 50 weeks = $20 per week saving target

Find a way to put aside $20 per week, for 50 weeks, and you’ve got a basic emergency fund. It sounds simple but this is a real challenge for most people. Saving $20 for one week is relatively easy. Saving $20 for 50 weeks takes commitment and more thought.

Your motivation is to put your household on a more secure financial footing. The next time an unexpected expense shows up, you will be prepared to handle it without accumulating debt. Events that feel like a disaster today will seem like a speedbump when you’re prepared for the unexpected. Commitment to this challenge today will reduce your stress tomorrow.

Where to Find an Extra $20 per week?

It doesn’t really matter where you get the extra $20 to save every week. Found a $20 bill in your winter coat pocket? Take a spare change jar to the bank? Did your friend pay you back for lunch last week? Any $20 will do but some ideas are more repeatable week after week.

  • Make coffee at home instead of 4 x $5 gourmet coffee at the coffee shop
  • Bring your lunch to work 1 or 2 days instead of buying lunch
  • Skip one meal out and make something less expensive at home
  • Mow a yard, shovel some snow, or do another odd job for $20
  • Cancel a subscription you no longer use
  • Drive a little smoother and save some gas
  • Shop around for lower car or home insurance rates
  • Sell something you no longer use for cash
  • Shop for discounts on your mobile phone plan or reduce the data allowance
  • Buy generic brands or bulk quantities at the grocery store

This challenge doesn’t require you to spend a lot of time and energy making a budget or getting a raise. It just requires a little thought each week for 50 weeks.

What to do with the $20 each week?

One important part of this challenge is keeping your emergency fund separate from your normal spending accounts. If you save your $20 in your normal bank account, you will lose track of it and the chances of you spending it go up significantly. Some options might be cash in an envelope in a secure location or a savings account with an FDIC insured bank if there are no monthly bank fees that would eat into your savings.

What Happens if I Can’t Save $20 One Week?

Missing one or two weeks isn’t a big deal. Just reset again next week and try again. If you miss a few weeks, it will take a little longer to reach $1,000 but you’ll still be making progress. If saving $20 feels like a struggle for many weeks, you may need to look carefully at your budget or ask for help.

Can I Save More than $20 Per week?

Absolutely! If you get an extra bonus, get birthday cash, or find a way to save more than $20 in a week, you can add it to the emergency fund and reach your goal faster. However, don’t save so much that you can’t pay your normal and necessary expenses.

Savings Per Week Time to $1,000
$20 50 weeks
$40 25 weeks
$100 10 weeks

What Happens When I Reach $1,000?

Congratulations on winning the challenge! You found a way to adjust your income and spending to set aside money for unexpected expenses. Your household is now in the 50% that can handle a $500 or $1,000 emergency without going into debt.

Now is a good time to review your current Stage of Wealth and start planning for the future.

When Can I Spend the Emergency Fund?

The fund should be for emergencies. Everyone’s definition of an emergency is a little different. Unpredictable events like an ER visit, a car accident or an unexpected household repair might qualify. The emergency fund is a buffer to protect you from taking on more debt. Use the emergency fund for necessary expenses that aren’t part of your normal spending when not using the emergency fund would force you to spend money on a credit card or take out a loan.

I Had an Emergency and My Fund is Under $1,000

Great! You had some money set aside to deal with an emergency and you used it. Just start the $20 per week plan again until you’ve built your fund back up to $1,000.