Building an emergency fund is the first step to financial stability, and financial stability feels goooood. Real good. The idea looks different to everyone (some people want a million dollars, others only want a thousand), but the basis is the same.
Money has a way of making us feel safe. A well funded emergency fund is the down comforter that helps you sleep at night. It’s the extra padding that affords blowing your monthly brunch budget or suddenly needing 4 new tires.
I remember being a kid and becoming frugal out of fear. I was afraid I’d wake up one day and desperately need those $2 I spent at Taco Bell. Or my family would be just $2 short on the power bill and I could’ve protected them with that little safety net.
It sounds crazy now and is a valid anecdote for my irrational anxiety, but it was a good start!
As soon as I could set some money aside, I did, and for the last 7 years I’ve had the “safety” of an emergency fund giving me invaluable peace of mind.
3 steps to start your emergency fund right now
open a separate, high-yield savings account
You can open an account with your current bank, but if they don’t offer high-yield accounts it is totally worth it to open with an outsider. No matter what, it’s best to be separated from your typical checking account. Moving your savings into a separate account is key for 2 reasons.
- it’s less accessible when it isn’t a running balance in your checking account.
- your money can make money in a legitimate savings account.
Added bonus, It’s crazy easy to integrate with your primary checking so you can still see everything all in the same place you usually log into. I’m so glad we live in these times.
The era of online banking is here, meaning you can open an account in less than 5 minutes with $0. Personally, I use Ally bank and highly recommend them. They are always accessible via phone and I’ve never had a bad experience. Period.
AND there are no fees, which I only tell you because if you’re being charged to save you need a new bank.
If I wasn’t happy with Ally, my next runner up is Marcus. They actually have a higher rate than Ally right now, but the rates vary with the Fed Funds rate/economy. Regardless they also go the no fees, $0 initial deposit route so you can open it and take care of the rest later.
You can shop for more here but keep in mind, not all of them have no fees.
figure out how much you can save
Find out how much you can set aside each month after all of your necessary expenses (rent, utilities, gas, groceries) and prioritize spending on your savings account for a little while. The more you save, the sooner your emergency fund will be flush.
It can be $25 a month, which you probably won’t even notice. However, I kinda love pushing it as far as I can because no pain, no gain right? The more little luxuries you can sacrifice, the faster your fund will grow.
But no one expects you to just guess how much you can save. This is a perfect excuse to build out your budget and make it a monthly habit. My money method doesn’t deal with estimates and expectations, just the past facts and makes financial planning much more manageable for those of us who are way too busy to write down every penny we spend.
set up automatic drafts
Your savings is a bill, but it’s the best kind of bill. The pay yourself first kind of bill. So in the spirit of simpliflying bill pay, automatic payments make sure a bill gets paid even if you forget to pay it (or would rather not).
If you’re nervous about not having enough cash left over for other bills, then start small with $25 per paycheck. Trust me, I am all too familiar with the uncomfortable feeling of setting aside “untouchable” money when you already feel broke AF. But believe me when I say this: you will adapt to your new balance.
Setting up a regular deposit gets the money out of sight and creates a saving habit without thinking about it. It doesn’t matter which budgeting method you are using (and yes, no budgeting method IS a budgeting method) it’s hard to make the effort to manually move money to savings. And that’s totally normal.
When want to take the excuses and uncomfortable bank-draining activity out of the equation, tell a robot to do it ?
The biggest benefits of an emergency fund
Having that money set aside waiting for a disaster seems like a self-fulfilling prophecy in the making, until you think about the other side of the equation.
surprise expenses come up even if you don’t have money saved for them. In fact, about 30% of Americans have nothing set aside. So what happens when unbudgeted expenses come up?
Struggling happens. And that ain’t fun.
Since we know these things just “happen”, alleviating the impending doom is a game changer. It turns those holy sh!t moments into it’s cool, that’s why the money’s there buffer.
and I LOVE it. Can’t you tell? I could talk about emergency funds all day. The benefits are mostly mental, and this mama will take every bit of mental help she can get.
- Peace of MIND – to ease that deep rooted anxiety
- Foundation of financial freedom – to catch those incidental costs that blow your budget
- Free up funds to INVEST
- Lay-off insurance
- helps avoid credit card debt!!!
Build your net worth
At the end of the day, we’re all just working towards retirement. And in case you didn’t know, you need an emergency fund before you should start investing for your future. If you want to get comfortable growing your net worth and setting your family up for generational wealth, the first step is to get comfortable with the emergency stack of cash.
Because if you can’t manage $1,000 or $10,000 sitting in the bank then you can’t handle the stress of much needed money fluctuating with the market.
That emergency fund is there to catch us when we fall and strongly discourage us from tapping into real our long-term savings accounts. The ones we will be living off of once we ditch the workforce and don’t have paychecks rolling in. The ones with huge ugly penalties to cashing out early. So for liquidity’s sake, everyone needs an emergency fund before getting serious about building net worth.
And the best part? Your emergency fund IS part of your net worth. What’s in your way? Let me know below!!