It’s not glamorous or fun but building the safety net of an emergency fund will feel like a nice warm money hug when life throws you curve balls!

 1 – What is my monthly emergency budget number?

First you need to start with your regular budget. (If you don’t have one of those, click here to get my free budget template.) Then you need to remove anything from the budget that you would eliminate if you were in a financial emergency. Your emergency budget should include the items that you would need to pay for if something big happened. Something like losing your job or a pandemic (sorry, I had to-this is our current reality). Get really critical with what you would cut.

2- How much should you have in an emergency fund?
The short answer, it depends! Yes, I know this is a very common answer to many of the financial questions I pose, but it is the truth. Personal finance is just that, personal!

The longer answer is while yes, it does depend on your situation, there are some general guidelines.

You should try and save 3-8 months of expenses in your emergency budget (the scaled down version of your regular budget). The 3-8-month range is big, and it comes down to a few different factors. Are you the sole income earner in your household? Are you self-employed? If you lost your job today, would it take you a long time to find a new one? If you answered yes to any of these, I would recommend you go closer to the 6-8 months of expenses.

Start with a little bit every month and add to it whenever you can. Don’t wait to start until you believe you will be able to save more! Start today! If you wait until you have a higher income or lower expenses, there is a good chance that you won’t start then either. So, go get started!

2 - Where should you stash your emergency savings?

It should be close enough for you to access it when you need it, but not close enough that you are going to be tempted to spend it on non-emergencies.

What the hell does the mean Sherry? That’s pretty cryptic!

Again, this comes down to what is going to work for you. If having it at the same bank you use for paying your bills won’t be tempting for you great, keep it there. If it will, open it at a separate bank.

Interest rate on your savings is also a consideration, but not the only consideration for sure, so keep this in mind too. A bigger consideration is, access as quickly as you may need it. A factor in this is if you use credit cards or not. Some people know they get into too much trouble, so choose not to. If you do not use credit cards, the money needs to be very accessible. Think about this situation: your car dies on the side of the road, far away from home and you need to pay for a tow, a car repair and a hotel for the night right now!

The money should NOT be invested. Imagine you lose your job and need access to your emergency funds to pay your bills, but the market it down!! Your 6-month emergency fund could now be a 5-month emergency fund (or worse). You don’t want to take the money out, so you feel pressure to get back to work. You take a shitty job because it’s going to pay the bills...you see where I’m going with this! You want the amount you have saved to be there if you need it!

We personally have ours in a Tax-Free Savings Account at Tangerine. As we haven’t used all of our contribution room for our investments (yet 😁). 🇨🇦

3 - When should you use your emergency savings?

You may think that this one is a no brainer but setting up clear rules around when you will use your emergency fund before you are in the middle of a tough spot, will help you stick to your plan. What is a financial emergency for you, may not be one for others.

A car breakdown could be an emergency for you, if you have a commute to get to work and no option of public transportation, but to someone who works from home, or has easy access to public transportation, it is not an emergency. They can wait to save up to pay for their car to be repaired and leave their emergency fund intact.

Take 10-15 minutes and write down some scenarios that would be a financial emergency to you, then keep those scenarios handy to help guide you. If something pops up that isn’t on your list, take a minute to carefully consider if it is truly an emergency.

Financial emergencies really suck! Not having an emergency savings account to use for a financial emergency has exponentially more suck!!!

I don’t want that to happen to you. I want you to be prepared with more than just a Band-Aid! I want you to start saving right now! Inaction is not going to get you where you want to be, you need to take action now!

If you’ve been looking at the amount that you “should have” in your emergency fund, this can feel quite daunting. Please don’t let that stop you from starting. Go get that account open, and make your first transfer. Start with where you are. You could start with five dollars, or $25. You could get your ass in gear and sell some of your shit that you don’t need and use that money to start your emergency fund. Get creative and get saving.

I don’t want to stress you out; I want to motivate you. Here’s a little bit of motivation. Think about the last time you had a big financial whammy hit you, think about how that made you feel. Now flip that feeling on its head, and think about how you would have felt if you had several months of expenses saved in an emergency savings account.

 If this has motivated you to get started with your emergency fund, please make my day and drop me an email to let me know.

sherry@moneymindsetfc.com