How I Built My Emergency Fund 🚨 + How You Can Start One, Too!
How I Built My Emergency Fund 🚨 + How You Can Start One, Too!
Me, post emergency wisdom tooth surgery!
08.26.2023 - By: Anastasia Barbuzzi
We are BACK after a week of vacay and surprise wisdom tooth surgery. You asked for an episode on building an emergency fund following the incident, so I recorded an entire solo show about it covering:
What's an emergency fund, and do you need one?
Personal emergency experiences
When should you start an emergency fund?
Making saving up less stressful
Creating an emergency fund account
How to use it effectively and efficiently
How to know what to contribute
Practicing healthy restraint with your emergency fund (a.k.a resisting the urge to use it for non-emergencies)
Spoiler alert: Consistency is key!
If you want a written rundown of how I built my emergency fund, scroll for the details.
From personal experience: The reality check.
If you’ve been following along with the podcast from day one, you know I've personally been in a situation where I didn't have an emergency fund, and it was a wake-up call about their significance. You can listen to more about that here.
More recently, I found myself facing surgery and numerous medical appointments. Without the financial benefits I had in place, the total cost would have amounted to nearly $3,000, including medications and other expenses. This experience reaffirmed the importance of having an emergency fund to handle unexpected situations without undue stress or guilt.
Before you start building one, ensure you have a full understanding of what an emergency fund is and it’s purpose.
An emergency fund is essentially a financial cushion that provides you with a sense of security in times of crisis. Emergency funds should typically have three to six months’ worth of expenses, although the 2020 economic crisis and lockdown has led some experts to suggest up to one year’s worth.
Typical, you set this sum of money set aside specifically to cover unforeseen expenses, like medical bills, job loss, or any other unexpected financial burden that might arise. Instead of scrambling to find funds or relying on high-interest loans, an emergency fund allows you to handle these situations without derailing your financial stability.
Next, determine when you should start your emergency fund, the amount you should contribute to it, and how often.
Starting an emergency fund doesn't have to be a grand endeavor. It's wise to begin when you have more than enough to cover your basic needs and bills, in my opinion. Starting an emergency fund shouldn’t add to your overall stress levels— it’s supposed to support you when you need it most! Cover all your bases first.
Create a separate savings account specifically for your emergency fund. This distinction not only makes it easier to track but also reinforces its dedicated purpose.
Always make sure you’re putting emergency fund money into accessible and liquid accounts.
To make the most of your emergency fund, it's crucial to keep it in accounts that are easily accessible and can be liquidated quickly. While traditional savings accounts are a common choice, money market accounts or certificates of deposit (CDs) can also provide a balance between accessibility and earning potential.
To avoid unnecessary fees, transfer money from your emergency fund to your checking account when needed. Many financial institutions offer online banking or mobile apps that facilitate this process.
The crucial test: Resisting non-emergency use.
Perhaps the most challenging aspect of maintaining an emergency fund is resisting the temptation to use it for non-emergencies. It's essential to establish clear criteria for what constitutes a genuine emergency. By adhering to this principle, you ensure that your safety net remains intact and ready to serve its purpose when it's truly needed.
An emergency fund is not just a financial cushion; it's a psychological relief and a tool that empowers you to navigate life's uncertainties with confidence. Whether it's a medical emergency, sudden unemployment, or a major repair, having an emergency fund can mean the difference between financial stability and turmoil.
Similar to all saving and investing concepts, it's never too early to start building this safety net— your future self will thank you for the peace of mind it brings.
Thoughts? Questions? Leave them in the comments below!
Financial glow-ups are best served with a side of consistency. Create a stress-free plan that’s not only easy to stick with but actually works for you!