When you have credit card debt, car loan, student loan, and mortgage, you don’t need to have three to six months of your income saved for emergency fund. You can avoid emergencies by following these few steps:

Save for irregular expenses

Irregular expenses are expenses you pay for few times a year. They include home maintenance, car insurance, car repair, home insurance, birthday and holiday gifts, medical copay, travel, and out of pocket medical expenses. Estimate how much all these expenses cost you a year and divide the total by 12. Every month put that amount in your saving account. We estimated our irregular expenses to be $4,100 a year. We put $350 in our saving account every month toward these types of expenses. Track your irregular expenses throughout the year to make sure your total estimate is above your actual expense.

Build 3-6 months of food supply

Set a fixed monthly budget for your grocery. Take cash out and at the end of every month put anything not spent in an envelope to spend toward sales. Slowly stock up on the staples you use in your house and over time you would have 3-6 months or more worth of food and non-food available.

Set a budget for your living expenses

Track your actual expenses every month to make sure we live within your budget. Know how much you need for your living expenses a month without including your mortgage. Then figure out how much is the total minimum due toward your debts every month including mortgage. If you don’t have debts you would need very little to provide for your needs every month. Without debt, you would be able to save 3-6 months of your living expenses if you so desire.

We set our budget at $1,340 a month without mortgage. We spent in average $1,200. We recently decreased our monthly budget to $1,064 and spent in average $961 a month. Our minimum debts payment is $1,189 including $935 for mortgage and $254 for credit card payment. Our irregular expenses are estimated at $350 a month. If we paid off all our debts, we would only need $1,311 ($961 + $350) a month.

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Pay off your debts

Start with your credit cards followed by your car loan, student loan, and your mortgage.

Pay the minimum of all your debts and apply the excess of your income toward the lowest credit card balance until it is paid off. Repeat the process until all your debts are paid off.

If you build 3-6 months of food and non-food supply at home, you live on less than you make, and you paid off all your debts including your mortgage, in case of a temporary setback in your income, you know that you have enough food on hand to feed your family and would just need a minimum amount to pay your utility bills.
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Recommended Books:

1- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Dr. Stanley: https://amzn.to/365r7QG

2- The Money Book for the Young Fabulous & Broke by Suze Orman: https://amzn.to/2P9mAqZ