Well, hi there! Today I’ll be talking all about emergency funds, what they are, where to save them and 4 easy steps to set up your emergency fund.
What is an emergency fund? It is money saved up for unexpected events and emergencies (when life happens).
What is considered an emergency? Losing your job, health emergencies, including that of your pet, kids, car repairs, home repairs and unexpected things that happen. No, a vacation is not an emergency. Although, I could argue a trip for your mental health might be an emergency (lool, just kidding).
Why do you need an emergency fund? Because it gives you financial peace of mind. If you have an emergency fund or some money saved up, you don’t need to worry about being stuck at a job you don’t like or your pet getting sick because you have some money stashed away for this. Having an emergency fund helps reduce the financial stress of just existing and adulting in general. When I was a student, I had a random dental bill that insurance wasn’t willing to cover and the thought of the bill started to stress me a bit until I remembered I had some money in my emergency fund which could cover that; I felt a lot calmer after that.
How much should I have saved in my emergency fund? Experts say between 3- 6 months of your monthly expenses. Another school of thought says it should be your 3- 6 months of your net income. What I suggest is, your monthly expenses and some change for 3 months and you can adjust it based on life changes, your personal comfort level and your financial situation.
Where should my emergency fund be? I’ll start by telling you where it should not be lool. Definitely not in the stock market or tied up in crypto. My best recommendation would be a high interest savings account that is not easily accessible.
Okay, now that we have covered the basics regarding an emergency fund, let’s talk about practical ways to get started.
- Calculate your monthly expenses and multiply by the number of months worth of expenses you want to save for. Let’s say your monthly expenses are $2000 monthly and you want to have 4 months worth of expenses in your emergency fund, you’ll need $8,000 saved up. (Your monthly expenses should include: rent, car payments, insurance, telephone and home bills, transportation, groceries, debt repayment, child care, grooming, etc)
- Open a high interest savings account that isn’t easily accessible (check out wealth simple or EQ if you live in Canada)
- Set a date you’d like to have completed building your emergency fund by.
- Set up automatic monthly withdrawals from your main account to your emergency fund.
That’s it for now. Hope you enjoyed this post and picked a thing or two from this. What are some tips you heard or have tried that have helped you build your emergency fund? Do you have an emergency fund? Share with me in the comments and please don’t forget to share with your friends.