BB
Beverly Bird
about 1 month ago

How My Emergency Fund Saved My A$$

money
emergency fund
I was living the dream, freelancing for a living and making a living. Writing all night, sleeping until noon, and checking my bank balance once a week or as compensation for all my labors spilled in.  

Saving was something for people who expected bad things to happen to them. Not me. I was on top of the world…until the company I was giving most of my time to shuddered and drew its last breath. I had $16 in my bank account the day I got the news. My rent was due in 13 days, and I didn’t have even hint of work on the horizon. 

I survived, but it wasn’t pretty. And I learned my lesson. Life doesn’t give you a warning before it decides to kick you where it hurts, so you better have your pads on, always. 

It’s not just about losing your job. 

When you think “financial crisis,” job loss is probably the first thing to come to mind, but I had a steady, secure stream of income the second time I hit the wall. I got slammed with an unexpected bill in the neighborhood of $2,300…which, coincidentally, was close to the balance in my checking account.

Since I’d lost my job two years later, I had a stash of cash set aside that time around. But I had to figure that out the hard way.

Think about it: Could you cover the cost of your car breaking down or a trip to the emergency room with your current savings? If not, you need an emergency fund.

What if you’re already broke? 

If every blessed dime of your paycheck already has a place to go before you earn it, tucking 20 percent aside to pay for an emergency can be a real stretch. So start with five percent, or even two. But start, because—trust me on this one—you won’t like counting Ramen noodles. 

Dump your spare change into a jar every night, or maybe even the one-dollar bills you have in your purse. Cart the money off to the bank at the end of the week. If that feels too out of the Stone Age, consider one of the many saving apps out there—Acorns invests your spare change for you automatically. (Psst! Coming soon, Nav.it will stash that cash for you too.)

If all else fails, free up some money from other areas of spending. Dedicate yourself to cooking one night a week instead of going out or ordering in. Skip the Starbucks. In my case, I toughed it out until Friday if I ran out of wine in the middle of the week rather than purchase another bottle right away. Also, side gigs to raise some cash are not to be overlooked. 

How much do you need? 

Lofty experts suggest that you have six to eight months’ living expenses set aside. More reasonable sources suggest three to six months, but a 2018 survey by Bankrate indicated that only 29 percent of adults have that much set aside in savings. About 25 percent of millennials said they had no savings at all (eek!). Let’s face it, even a month’s savings can be better than nothing at all. 

Where’s the safest place for your stash?

When it comes to an emergency fund, you might want to avoid the convenience of saving at your regular bank. It’s too easy to dip into the money if you’re reminded it’s there every time you go online. And don’t apply for a debit card for the account. 

At the same time, you want that money accessible so you can grab it if (and when) disaster strikes. Look for a high-yield savings account at another financial institution—the interest will help beef up your accumulated balance. 

Speaking of interest, you might want to shy away from certificates of deposit (CDs). The fixed interest rate is clutch, but you’ll lose at least a portion of your interest if emergency strikes and you have to take the money before the prescribed period of time has passed.