Safeguarding Your Future with an Emergency Fund
The emergency fund is one of the foundations of financial freedom.
Building wealth becomes an insurmountable challenge when recurring setbacks constantly derail your progress. I will show you how to protect your future for a calmer life.
Start Small
Everyone and their mother will tell you to put away 3–6 months of expenses. What they won’t tell you is that this amount of money is a lot for most people.
Has anyone seen the current economy and inflation? It’s never an excuse to use, but this is still a very real issue.
Say you make $1200 every 2 weeks and your rent is $1200; that doesn’t leave you with much leftover to save.
Good luck trying to save $10,000 in 6 months!
Here are a few ideas that might help.
Start uber small. I’m talking about $100 or the lowest you can comfortably afford.
Keep it liquid. When it’s that small, don’t get fancy with money market accounts unless it’s a savings account. Where I’m from, it would take me 1–2 business days to access my emergency fund. That’s fine since I could put something on my credit card or line of credit in the meantime.
Don’t spend it. The trick here is to build your saving muscle and resist the temptations of the world. This is much more difficult than you can imagine.
The Saving Muscle
The main reason people don’t have any emergency savings is due to a spending problem.
I’m aware some of you don’t make much money, but look at what you spend your money on.
I’m sure you can start saving $25 by not going out for supper one time or having coffee most mornings. I’m not out to get Starbucks lovers here; I’m trying to make a point about our spending habits.
Most people have a savings issue as they don’t exercise this muscle ever.
I used to be that way, and that’s why I had money issues.
People say things like “Your first ten thousand is the hardest” because they have built up their savings muscle by then.
How Much Should Be in My Emergency Fund?
This really depends on a few things. First of all, you need to add up all your expenses for an average month and then multiply by 3–6 times.
But how do I know if I need 3 months or 6 months?
Here is a guide to give you some clarity.
Use a 3-month emergency fund:
You have no dependents.
You’re single, and your income is stable.
You’re married, and both of you have stable incomes.
Use a 6-month emergency fund:
You’re self-employed or work a job with an irregular income.
Married with one income.
You’re a single parent.
You have health issues.
I recently found myself in a situation where I had to tap into my emergency fund. I’ll link my article below.
When you’re prepared, these situations become more of an inconvenience than an emergency.
The Unexpected Financial and Emotional Toll of My Child’s Sick Cat
What If I’m Low-Income?
The 6-month recommendation is ironic as most people in that category won’t have much money to save. That’s where you need to look at your total spending and do the best you can.
If you smoke, quit; if you drink, quit; if you buy lottery tickets, stop.
Easier said than done, but when you calculate how much you spend per year, it jolts you.
I always calculate my yearly costs when I’m looking at my budget as it’s a huge eye-opener.
Imagine you see $25 a week for cigarettes and think, “That’s not bad.”
Now take that $25 x 52 weeks = $1300!
You’re smoking away your future… in more ways than one. I’m not here to harp on people who smoke or drink.
I want people to see there are other options for financial freedom.
These articles are a realistic way for people to start getting ahead. I spent 20+ years learning these lessons, so I may as well share them.
Thanks for reading :)