Have you heard me talk about emergency funds but feel overwhelmed with where to start? Are you unsure if you even need one? Or when to use it? Or how much money should be in it? Well, I've got all the answers for you!!
In this week's solo episode, I share everything you need to know about emergency funds!! What they are, why they are helpful, when to use one, how much should be in your fund, and where to store it. I will walk you through the 5 steps to setting up your own emergency fund, and help you feel confident getting started. In only 20 minutes you'll walk away with all the info on emergency funds and the tools to create your own!
Ready to take control of your money? Well I’ve got you covered with my mini course library. 6 different courses priced at $47 each, these mini courses are an awesome (and affordable!) way to start taking control of your financial future. https://ellycefulmore.com/mini-courses
Have you heard me talk about emergency funds but feel overwhelmed with where to start? Are you unsure if you even need one? Or when to use it? Or how much money should be in it? Well, I've got all the answers for you!!
In this week's solo episode, I share everything you need to know about emergency funds!! What they are, why they are helpful, when to use one, how much should be in your fund, and where to store it. I will walk you through the 5 steps to setting up your own emergency fund, and help you feel confident getting started. In only 20 minutes you'll walk away with all the info on emergency funds and the tools to create your own!
Ready to take control of your money? Well I’ve got you covered with my mini course library. 6 different courses priced at $47 each, these mini courses are an awesome (and affordable!) way to start taking control of your financial future. https://ellycefulmore.com/mini-courses
Hi, friends. Welcome back to another solo episode of Keep Finance Queerd! Today, we are talking all about emergency funds, everyone's favorite topic, right? Well, I get so many questions about emergency funds that I thought it was time. Time that I create a podcast episode all about it so that I can refer people to this episode and so that if you're confused on any aspect of emergency funds, you can come back to this episode and it can overall just be a helpful place for you to get information about emergency funds. Now more than ever, emergency funds are so important. And if the pandemic has not convinced you that you need an emergency fund, I hope that this podcast episode does. Hi there. Hi. I'm Sydney. My name is Rebecca. I'm an autistic kwoman. I'm Jane. I'm a first generation Latina. I am a single mom and a survivor of domestic abuse. I am an ADHD plus sized millennial on the autism spectrum and Add, creating other problems in itself. Even though I bring in decent money, I struggle with staying ahead of everything. I am now struggling to pay off my debt. My traumatic brain injury means that it's hard for me to concentrate long enough to sort out my finances. The hardest time managing my finances. My parents were never able to teach me. I love my Starbucks habit, and I'm not giving it up. Emergency funds should be your number one financial priority. Regardless of if you have debt, regardless of if you started investing, regardless of anything else in your financial situation, emergency funds should be your top priority. The reason for this is because emergency funds will protect you from going into any more debt, and they really set you up for a sustainable financial future and they set a strong foundation for your finances. So let's say, for example, you have credit card debt right now, and you're probably feeling really stressed about it. You want to pay it off as quickly as possible. Let's say you have $5,000 of credit card debt, so you're putting all the extra money that you can every month towards your credit card debt. Now, you don't have an emergency fund, and let's say that something unexpected comes up, an unexpected cost that you cannot predict and that you have to pay right away. So this could be a lot of different examples. Now, let's say your car breaks down or is written off and you need to get a new vehicle and you have to pay for it out of pocket. And let's go back to your credit card debt. You had $5,000 of credit card debt, but you've been working really hard for months putting all that extra money away to it. And now you only have $2,500 of credit card debt. So you've paid off half that credit card debt, but now you're forced to purchase a new vehicle. And let's say that new vehicle costs $3,000. Now you are back in actually more debt than when you started. So that is what an emergency fund protects you from. Yes, there is a chance that you would pay off that entire credit card debt without running into an unexpected expense. But even still, even if you have zero debt right now, if an unexpected expense came up and you had no emergency fund, where is that money going to go? It's probably going to go on your credit card. So even though, yes, you might be able to get through some time without experiencing any emergency, it's to protect you in case you do. So there's going to be financial gurus out there. I know there's lots that disagree with me on this. They will say pay off your debt first because it's costing you the most. It makes the most financial sense to pay off your debt first. But I want you to listen when I say this. It makes the most financial sense to make the decisions that are the best for your financial future and that are going to set you up for success in your financial future. And that is having an emergency fund. Because that is going to protect you, like I said, from going into more debt and protecting yourself from that is more important than becoming debt free quicker. Now that we got that out of the way, we understand why we need emergency funds. Let's talk about what an emergency fund actually is. So an emergency fund is a savings account. So it's a fund of money that you are specifically putting aside for any sort of emergency or unexpected expense. I've tried for a while calling it a safety fund because I felt like that is a better term for what it actually is. But then people didn't know what I was talking about, so I went back to emergency fund. But it does not have to be for just emergencies. It's for unexpected expenses that you couldn't predict. So this could be, it could be big emergencies. Like you have a health issue that happens. And if you live in the US. And don't have any health care and don't have insurance, you're paying for a surgery out of pocket or your animal. If you have a cat or a dog or any sort of pet, they could need emergency surgery. And animals can be expensive. Like, I know some surgeries on animals can be like $5,000, $10,000. It can be crazy. So that might be something that happens. Vehicle is another big one. Your vehicle might break down unexpectedly or you get in a car accident that you have to pay for out of pocket or things like that. You might switch medications and suddenly your new medication isn't covered by insurance and it's $500 a month, things like that. There's so many different unexpected expenses that could happen. Maybe your phone or laptop breaks and you have to buy a new one because you use them for work. So those are just some examples, but it's basically any unexpected expense. And that emergency fund is a lump sum of money that is specifically put aside to pay for those unexpected expenses. So the next question, why do you need one? So I hope that I've convinced you a little bit by now, but the reason why you need an emergency fund is because that emergency fund is going to keep you on track with all of your financial goals and not throw your life completely off and not put you into more debt. So think about it like this. If you have an emergency fund and maybe you're still paying off debt. And maybe you're paying off low interest debt and you're investing and you have that emergency fund and you're just living life and you have a nice little budget that you stick to every month and this unexpected expense comes up. You can just pay for that with your emergency fund and then you can just continue on as normal. Right? And obviously you want to fill that emergency fund back up, but the point is that it didn't affect your monthly budget. You didn't have to take money out of what you spend every month to cover that unexpected expense. You just took it out of your savings account. That is your emergency fund. You took that money out of your emergency fund and you could continue to put the same amount of money you've been putting in investments and towards your debt and things like that. So that is like the beauty of an emergency fund is it doesn't disrupt your current financial plan. So whatever financial plan you're currently following, it doesn't disrupt that and it actually supports it. It allows you to just keep going as normal. And that is what we really want. Because the worst thing is when you have a great financial plan, you're feeling really good and then something throws it off and it takes you like six months to get back on that's super discouraging and you feel like shit about it and you're like, I just want to give up and not think about money again. And you spiral into guilt and shame and we do not want that. So that's why you need one. And I will say another reason why you need one, which I feel like I've emphasized already, but you need one because things happen. We think that we're always the people that nothing bad will happen to, but things happen. And they can be big things, they can be small things, they can be emergency things, they could be unexpected things. But things happen. And it's important that we are financially prepared and setting ourselves up as best we can. The next big question that I get all the time is when should you use it? Like, I have people message me being like, Elise, I have this emergency fund, but I don't know when I should dip into it. Like this thing happened last month. Should I have used my emergency fund for that? I don't know. So you should use your emergency fund for expenses that you could not have predicted. So unexpected expenses, there was no way that you could have planned for this to happen. So that's the big difference between emergency funds and what I like to call syncing funds. You may have heard me talk about them before. Syncing funds are basically your short term savings for specific things. So your short term savings, your syncing funds are for expenses that you can plan ahead for. So if you, for example, have a very old vehicle and it's been having some issues for a while, you can pretty confidently predict that you're probably going to have to put money into this vehicle again to fix it or get a new vehicle somewhere down the line. So you would want to be saving money for vehicle maintenance or new vehicle in syncing funds because you can predict that that's something that's going to happen. Whereas if you just bought a brand new vehicle, you wouldn't really be predicting that something is going to go terribly wrong and you're going to have to spend thousands of dollars repairing it, right? Like, that's not something that's an unexpected expense, but regular maintenance, like an oil change, is an expected expense. So another example might be if you are part of a wedding party and you're a bridesmaid or a groomsman in a wedding party, then you know that you're going to be doing that. You know that it's coming up. That's something that you'd want to be putting money aside for in a sinking fund. And you wouldn't want to use your emergency fund for that. But anything that you couldn't have predicted, there was no way for you to plan for, that's going to come out of your emergency fund. And I will say also if something comes up that maybe you could have predicted but you didn't, and you don't have any other money to pull from, like you don't have any other syncing funds. It's also okay to use your emergency fund in those instances because when you're first building up an emergency fund and syncing funds, it's hard because you don't have that foundation to build off of. You're starting from zero, right? So in that case, if the options are use my emergency fund or slap it on a credit card that's maxed out, then you might want to use the emergency fund in that case. But the point is that you're aware of when you want to be using it. And then that would probably be an instance that would encourage you to start a syncing fund for that. So I hope that's clear about when you use it. Now let's talk about the steps to actually building an emergency fund and how much should be in your emergency fund. Step number one is to figure out your monthly total expense amount. So this is basically how much you need per month to survive. So in this total, you would want to include all of your bills. So any reoccurring monthly bills that you pay, that would be rent, utilities, WiFi, your phone bill, any subscriptions you have, netflix, Spotify, etc. E. You'd also want to include the price of groceries and the price of transportation. So if that's gas money, if that's bus ticket, however you get around, make sure that that's also included in your monthly total and any other expenses that you need to function optimally. So I encourage you to please include things that help you function as a human in this number as well. Even though you might not die without it, you'd be miserable without it. So this would include things like therapy, medication, gym membership, etc. Like things are going to help your mental health or just help you feel your best. So you want to include that in your monthly total as well. So you add all of these things up and you're going to get a number that basically is your cost of living, your cost of surviving every single month. So you have that total. So let's just make it easy and say that it's $3,000 a month. Step number two is you're going to multiply that number by three to six months. Kind of the recommended guideline for emergency funds is to have three to six months worth of expenses. But you can also go higher than that if you want to feel more comfortable, if you want to go up to like nine months, whatever makes you feel good and safe, but obviously don't go too crazy with it because if you have too much money in there, then you'd probably want to invest some of that. But anywhere between three to nine months, I feel like is a good range, three to six months especially. So you take that number, $3,000, and you would multiply it by three months. So that would give you $9,000. So your three month emergency fund goal would be to have $9,000 in that account. Now, if you multiply by six months, you would get $18,000, which I know it seems like a very big number it is a big number. Don't freak out yet, okay? We're going to talk about it. But your six month emergency fund goal would be to save $18,000 in that account. I want to take a second here to say that this is not a rush. It is completely normal to take years to fill up your emergency fund. So be patient. Be kind to yourself. This takes time. It's not something that happens overnight, and it seems frustrating to do so, but it will protect you so much in the future. Remember, we're making this decision. We're building an emergency fund for our future financial success, because having a big unexpected expense that we don't have the money for down the line can throw off your entire financial plan. And hold you back from a lot of the financial goals that you want to achieve. So take your time, nice and slow, no rush. Let's go to step number three, which is open up a high yield savings account. So this is where you want to store your emergency fund. So I have my favorite high yield savings accounts linked below in the show notes for you, but I will say them out loud here if you are Canadian, I love EQ Bank and I also love Neo Financials Money Account, which is essentially their high yield savings account. And then for Americans I really love ally bank. So I have those linked below if you want to go try those out. But it literally takes five minutes to open. You can open it online and you earn a lot higher of an interest rate in a high yield savings account than you do in a regular savings account. Honestly, you can break up with your regular savings account. I give you full permission to just stop using it and put your money in a high yield savings account, okay? It has a higher interest rate. It's going to earn you more money. It is the way to go and your money is safe there. You just want to make sure that wherever you're opening that account, it's either CDIC or FDIC insured and then you're good to go. Your money is safe. It is good and you're not investing that money. It is completely accessible to you. That's why I recommend having it. And the other great thing about this is when you open a high yield savings account that is separate from your regular banking, that money is now hidden. You're not seeing it every time you open up your banking app so you're not attempted to use it. So I highly recommend doing that. Step number four is you want to figure out what your monthly amount is that you're going to put into your emergency fund. So you're going to look at this requires some time, but you need to look at your numbers. Like look at your budget every month, look at your income and see what you're able to put towards your emergency fund. I know some of you listening will be in a very tight financial situation right now. So if you are currently not covering your bills and not covering your cost of living, then that's your main focus, is covering your bills. So don't worry about putting money for the emergency fund. But if your bills are covered but you still feel like you're living paycheck to paycheck even in that situation, I urge you to find $5 a month that you could put towards your emergency fund and obviously increase that amount as you're able to. But for most people, you can find at least five dollars to ten dollars and I promise you, you won't miss it every month. For a lot of you and for many of you, you could do even more than that. So you want to look at your numbers, what you're able to do, what your goal is, and what your goal timeline is to have this emergency fund figure out what that monthly amount is going to be. So let's say it's $100 a month. That brings me to step number five, which is set up automatic reoccurring transfers to your high yield savings account every single month. So you could do this either once a month or you can do it every time you get paid, however you want to set that up. But let's say you do it once a month. On the 15th of every month, $100 goes out of your checking account and goes into your emergency fund, your high yield savings account. So you want to make sure you set that up, that it's automatic and it's reoccurring every month so that you're not even thinking about it. That money is just going away. You don't even get to see it, and you're making consistent progress towards this goal that was all about. Emergency funds. A couple of things I want to mention is if you have any dependents, if you have children, if you have pets, or if you own a home, your emergency fund should be even greater because these are going to be more unexpected expenses that could occur. So you're going to want to have an even bigger number for your monthly total. If you own a home, I would actually even recommend that you have an entirely separate emergency fund for your home, because as you probably know, things can happen in a property that you own that you might not expect. There's so many things that can go wrong in home ownership, like there could be a leak, you could have a flood, you could get your siding shredded by hail. That literally happened to my parents. So many different things that could happen. And so having an emergency fund specifically for your home is really important. And the reason why I think it can be great to have separate ones is because then, you know, like, this money is here for my personal unexpected expenses, and this money is for my home unexpected expenses. And then you're not compromising one for the other. I would highly recommend starting out as well. Obviously, I would recommend focusing on your personal emergency fund first, but that would be another goal to save up. And if you are someone who is working towards owning a property. Owning a home. I would highly recommend that you actually save up an emergency fund first and that you have an emergency fund for your home before you even purchase it. Because that's just an extra layer of protection in home ownership that will really help you. Especially if there's any unexpected expenses in the first couple of years of you owning. That is the quick little podcast episode on emergency funds. I hope that all of your questions were answered. And if not, you can always send me a message on social media or on Instagram specifically, and I'm happy to answer it for you. I've also linked down some of our free resources down below in the show notes. The first one is our free financial audit where you will get a clear starting point of your finances by writing down your expenses and where your debt and savings are at. And this is a really great tool to use when you're on step number one of building emergency fund and figuring out what your monthly total is because you'll have all of your expenses written down there. So I highly recommend doing that one. It's a free worksheet and the other free worksheet is the emergency fund worksheet, which is brand new, just been uploaded, so I obviously recommend doing that one as well. And that will walk you through exactly how to figure out how much you should have per month and the multiply to find your goal and basically write everything out. So you have a nice little sheet that you can either print out or do on your computer or iPad and have like a clear visual of how much you need to save, what that goal is, what you're working towards. Definitely go and check out those free resources and the last thing I will leave you with is a bit of encouragement. You can do this one step at a time. It's not a rush. Like I said, show yourself some compassion, be kind to yourself and know that any amount that you're putting towards your emergency fund is a step towards your financial future. You are making progress towards this goal. You are doing amazing and I'm so freaking proud of you. I'm proud of you just for listening to this episode. And anyone who's listening right now, you just took a major step towards your financial future by listening to this and by learning. And now the next step is implementation. So go away from this episode and start implementing some of the things we talked about. I know you can do this. Thank you so much for listening. Bye. If you enjoyed this podcast episode, we'd love it if you would share a screenshot on your social media and tell us what you loved about it. If you'd like to support the podcast, you can subscribe to the show rate and leave a review on Apple Podcasts or Spotify. I will be donating $1 for every review you left in the first six months to organizations that our podcast guests have chosen. Thank you for listening and remember to keep finance queerd!