So I personally have a philosophy that when it comes to money, and that belief is that there are levels to this stuff. And you may be at the level where you’re just kind of trying to survive and figure stuff out for the first time. After you’ve freed up some money for yourself (ie. lowering expenses, stop unnecessary spending, etc) what’s the next step? The next step is saving for emergencies. Here’s why you need an emergency fund.
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Here’s why you need an emergency fund
You can’t even start paying off debt until you have some sort of emergency savings. Because God forbid an emergency come, you’ve been throwing all your money towards your debt and then you do have an unexpected expense, then you just got to slap it on the credit card and your debt got bigger because you didn’t have cash sitting in an emergency account.
So you have to have some money set aside, like a rainy day fund or emergency fund. I named mine a cushion because it seemed so much nicer. You need to have money set aside for when shit hits the fan, when there’s an unexpected expense, or if the car breaks down. In my case, I had two oral surgery procedures in May. My emergency fund saved my ass on that one.
And unfortunately, if you look at what’s going on statistically in the states right now, most Americans can’t even survive a $400 unexpected expense, so that’s what this is about.
How to build your emergency fund
Get a separate account
Your first step to building an emergency fund is to start a separate bank account for emergencies. You do not want to have this money sitting in the same account as your checking account because it will be gone before you know it. If you can’t handle seeing the money in your current bank account then create a separate account at a separate bank for your emergency savings. Because if you don’t see it, you won’t touch it.
Figure out how much you need
The next step is to determine the number that it is that you actually need. Experts say six months to a year, but it really depends on you and your situation. For me, my number was around five or six grand. I know people say that a really good place to start is hit a thousand first because it’s not as overwhelming. Then you can increase your savings as time goes on.
Save automatically
Another thing you can do is with every paycheck, make sure that you’re transferring some of that money into savings automatically. This is something I’m starting to do again. After 10 years, I actually have a salary and a paycheck from my company. So now I actually pay myself a salary and I get a paycheck every two weeks.
Get extra money
And my favorite way to build an emergency fund is to go find extra money. Go get a side job, go find money on the side, go drive an Uber, go freelance. I don’t care what it is, go pick up extra hours, pick up extra shifts and make some extra money. And then you’ll be able to build it a lot faster.
So that’s basically how you build up an emergency fund. If it sounds simple, it’s because it is. People make it seem very difficult, but it’s not. And it’s little tricks and little hacks, and little automations like that can help you go a really, really long way.
Resources that are mentioned or add value to this episode:
- Persuade To Profit
- Make Money Your Honey Book
- {MMYH Ep. 88} Get Back To Basics With Personal Finance
- {MMYH Ep. 89} How To Focus On What You Want In Life
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