My Mom always told me that “, If you save for a rainy day, then you will have enough for a storm.” And as long as I can remember, I have always been a saver. I had a cylinder shaped piggy bank with Peter Cottontail and his other bunny homies, chillin’ on the outside. That piggy bank held my coins until I was tricked into opening a bank account in my hometown’s local bank (Thanks a lot, Mom! smh).
Of course, growing up, an emergency mostly consisted of splurging on candy and snacks or coloring books. But now that I’m sorta grown, emergencies tend to include more adult problems like a blown tire or taking my pup on midnight trips to the emergency vet.
Hey, kids…. Never grow up. It’s a trap.
For those of us who have had large and unforeseen expenses arise, we can probably either tell you how happy we were that we had an emergency stash, or how difficult it was to find the money to cover the expenses. That’s why planning for the unknown is part of my financial journey to wealth. It can be a key factor in successfully weathering the storms we are all sure to face, at some point.
I know some of ya’ll (yes, ya’ll) are reading this and are wondering what the hell an emergency fund is and how to start one.
Yea, I read minds, too (Don’t tell anyone… It creeps people out.)
What is an emergency fund?
Long story short, an emergency fund is basically money that’s been set aside to cover any of life’s unexpected events. This money could allow you to live for a few months should you happen to lose your job or if something unexpected comes up that will cost a fair chunk of money to handle or fix. I plan to set aside money for myself that can be used at a later date. This money can then be accessed quickly and easily if some unfortunate event happens to occur.
Now, that’s a good look.
How big should my emergency stash be?
That is up to you. I personally want to save enough to cover approximately three to six months’ worth of living expenses. This will provide me enough time, for instance, to find a new job or supplement my unemployment benefits until I do.
I have a few hundred dollars, saved currently. So, I have quite a ways to go. But even though I’m starting small (You may be, too), as long as I’m starting! Every little bit counts, na’mean?
Where do I put all these coins?
The whole point of contributing to an emergency fund is to have quick access to it when you truly need it. That means it needs to be liquid. I personally created an online account with a decent interest rate on it. I connected this account to my local bank account, in case I need to transfer the funds to it. I specifically did not request a debit card for my online account, because…shopping. I want to avoid the temptation of dipping into my stash unless absolutely necessary. The whole point of this fund is to prevent me from having to add to my debt in times of need or scrambling to wrangle up the money at the last minute.
Now, some people put their money in investment accounts or money market accounts. I am personally too scared to invest my money that is saved for emergencies. If the market crashes, tomorrow, I’m screwed. Nah, I’m good. Also, money markets seem to have lower interest rates than my online accounts. At the end of the day, DO YOUR RESEARCH and do whatever you personally feel comfortable with.
What steps do you plan to take to create an emergency fund?
Well, SOMEBODY is nosey. But it’s cool. In light of being transparent, I’ll let you in on my strategy.
Here’s the plan:
- Set a monthly savings goal. This will help me get into the habit of saving regularly and will make saving such a large amount, less intimidating. Contributing a small percentage from each paycheck that is deposited into my bank accounts, for instance, is one way to do this. I also plan to “pay myself first” and transfer a minimum of $10 dollars from each paycheck, straight into my savings account.
- Keep the change. Whenever I get any $1 and $5 bills, I stash it in a secret location, at home. Then at the end of every month, I deposit it into my bank account.
- Tidy up my checking account. If there’s money left at the end of a pay period (miracles do happen, amirite?), I will move some into my emergency fund.
- Save your tax refund. This one is hard. But I plan to save at least HALF of my tax refund and deposit it into my Stash fund.
- Cut back on costs. Extreme couponing is going to help me save some of my monies. and eating out less. Boooooo!
- Get supplemental income. If you know me personally, then you know that I have like four jobs. Some of those paychecks can be contributed to my stash, as well.
At the end of the day, the simplest way to avoid accumulating debt is to avoid charging things on my credit card, altogether. The simplest way to do that is to pay for things, especially emergencies, with cash. If I have a reservoir of funds that could provide me a cushion, in case of those unforeseen emergencies, then I will be less likely to add to my overall debt. That’s exactly why starting an emergency is so crucial. It plays well into my overall wealth plan and can really aid me in the prevention of accumulating more high interest debt.
With that being said: Do you have an emergency fund? Why or why not? what methods have you used to contribute to your emergency fund? Let us know, in the comments!