Emergency savings (aka, the “oh sh*t fund”), are not the most glamorous things to be funneling your money towards.
At least with a honeymoon savings goal you know that you + your most favorite person in the world will get a huge payoff at the end of it all. Or when you’re saving for a down payment on a home dreams of a yard and your own mailbox dance through your head.
Building emergency savings feels more like trying to get through the last 27 minutes of a long work day with a busted clock. Not to mention its inherent value is in (drum roll, please) sitting there, ready to be used if necessary and best if never used at all.
So, why is benching your other dreams so that you can take the time and money to build an emergency fund not going to be as annoying as you think?
You’re Building Financial Independence
Squirreling money away in an account for when (not if) something happens that is beyond the capability of your monthly paycheck to cover a) is very adult of you in a Carrie Bradshaw-getting-a-mortgage kind of way, and b) enables you to become financially independent of others, which is quite empowering + sexy.
Think of your emergency fund as the buffer between you and:
- Moving back home with your parents
- Taking out massive loans at unfair interest rates because they’ve got you right at your most vulnerable
- Making bad, short-term decisions centered around you being able to pay your rent at the end of this month
You Don’t Need to Save as Much as You Think
My early twenties is when I first heard of the concept of emergency funds. I don’t remember which financial pundit this nugget of wisdom filtered down from, but I do remember being both attracted to, and annoyed by, the idea.
Attraction: I naturally gravitate towards multiple back up plans as well as place a high value on financial independence, so this clicked for me.
Annoyance: Saving up 6-8 months of money seemed so far out of my perpetual, entry-level paycheck’s reach.
So when I found this specific piece of information out, I heaved a humongoid sigh of relief: you save up 6-8 months’ worth of expenses, not 6-8 months’ worth of income.
And we’re talking bare-bones, what-do-I-need-to-survive expenses (sorry, eating out and pedis don’t make the cut…but neither does continuing to save for retirement unless you can swing it).
If you lose all the fluff and just keep the necessities – rent/mortgage, insurance, grocery store shopping, gas, debt minimum payments, etc. – then how much do you really need in order to survive for one month? Now multiply that number by the number of months you want to sock away, and that’s your savings target.
Psssst: If you get out of debt during the good times, like now, then you’ll need to set aside even less.
You Won’t Be Funding this thing Forever
So here’s the really cool “whew” about emergency savings accounts: once you reach your target, you get to funnel your money elsewhere. Unlike many things in life, there is an actual stopping point and a time when you can celebrate because you completed a goal in its entirety.
You only need to make changes/add more to your account when:
- You Life Circumstances Change: Adding to your family, marriage/divorce, and making lifestyle design choices (such as cutting out of the workforce to start up a business, or choosing for one parent to stay at home) are all reasons to reassess how much you need to survive each month.
- You Deplete Your Resources: If a situation creeps up and you’ve exhausted all possibilities of paying for it except to take money out of your oh sh*t fund, then you’ll need to tap it. Afterwards, funnel the money you are saving towards other goals back into your emergency fund until it is fully stocked again.
You Can Earn Some Money Off it
One more thought to take the edge off of saving for emergency funds and then just watching several thousand dollars of your money sit there without touching it: you can earn some money on the money that you save.
It’s not going to be much, as the interest rates right now are abysmal.
But let me ask you this: if tomorrow you used money you could be putting aside into an emergency savings account to buy a sassy new pair of jeans, would that pair of jeans ever earn you another dime?
Didn’t think so.
Do you have an emergency savings fund? Do you know how much should go into it? Where are you at on stocking it up?