Savings 101: Building An Emergency Fund
By Literally Broke
Now listen up. I’m going to tell you what my mother told me and her mother told her: emergency funds are the condoms of life.
Would you have rando’ sex without a condom? As your personal finance bestie I sure as hell hope not!
That said, I get it. In the heat-heat-heat of the moment, it’s tempting to go without protection (especially when a cute Ivy-league grad “just doesn’t” like condoms).
But in the long run your financial and physical protection is #1! And no one, not a cute boy nor any other financial obligation, should get in between you and your future.
So suit up, because we’re about to build you the emergency fund of your dreams.
So, What Is An Emergency Fund?
An emergency fund is a savings account earmarked for emergency expenses. Now, you may be wondering what an emergency expense actually is. It’s something unexpected and unbudgeted for.
Here are a few examples of true emergency expenses:
An unexpected hospital visit
Totalling your car in a car crush
Being let go from your job
Having an emergency fund in place gives you peace of mind and a safety net when life happens (because it always does). It can also prevent you from going (or going further) into debt.
How Much Money Do I Need In An Emergency Fund?
At Literally Broke, we encourage you to aim for a six-month emergency fund.
Paying off debt? Aim to save three-months’ worth of living expenses in your emergency fund instead.
Since everyone’s expenses vary, there is no hard and fast rule on what number to aim for. That said, your emergency fund should be enough to cover the following expenses:
housing
utilities
minimum debt payments
groceries
transportation
What if you just can’t live without your gym membership and daily iced latte? Then budget that into your emergency fund now.
How To Save An Emergency Fund
Rome wasn’t built in a day and your emergency fund won’t be either. Saving for an emergency fund takes time, hard work, and lots of intentionality.
Here’s what you can do right now to start saving your emergency fund:
Create a high-interest, FDIC-insured online savings account (my favorite is Ally).
Setup an automatic deposit to your savings account (strive for 15% but always remember that something is better than nothing)
Next, make sure your budget is in line with your emergency fund goal. Cut your frivolous spending and subscriptions liberally. When I was paying off consumer debt, I literally stopped getting highlights and just let my roots grow out. It was 100% worth it! Check out Budgeting 101: How To Take Control Of Your Money For Good to build a budget that works for you.
If you’ve run the numbers and just don’t see how you can save don’t get discouraged! Look into getting a side hustle to supplement your income.
Speaking from experience, side hustles can transform your money game. In addition to my full-time job I still have two side hustles (three if you count Literally Broke, which isn’t much of a money maker yet). If you need some inspo my blog post 5 Side Hustles That Helped Me Pay Off 10k In Debt Fast can help. When it comes to emergency savings, temporary sacrifices are really, really worth it.
Remember: what feels good may not always be in your best interest. An emergency fund protects you, so get out there and create one that works for you!