Starting An Emergency Fund

If I had a theme for this blog, it would be that life doesn’t go as planned. And while we can’t control all that happens in our lives, we can learn from our experiences and experiences of others. During the most recent situation, I learned a lot about myself, my time and my habits. My goal is to not fall into the same habits and to be more intentional with my time now that I am aware of these things.

One big thing I noticed was how many people panicked when they were asked to stay home from work. After 1 day of staying home, families with two working parents were signing up to get food for their kids because they felt they were financially unable to feed them. People were saying they couldn’t pay their mortgage or rent. There was as much or more fear about money than there was about the virus. This was a shock to me and it really concerned me. So what I am about to write is intended to help everyone who is in the above financial situation so that if something unforeseen happens again we will be better off than we were this time around.

When I got married and bought my first home, one of the first things I did was call a financial adviser to start saving my money. I was determined to be a responsible adult. The first thing the adviser asked was if I had 6 months worth of my expenses saved in case of unexpected circumstances. I said no and she told me to call her back when I did. I remember sitting in the room with unpacked boxes stacked around me and wondering how in the world I was going to save up 6 months worth of expenses and the have extra money to invest.

Eventually, we saved our “emergency fund”, placed it in a separate account and pretended to forget about it. Now throughout the years I have struggled financially but still, I have never touched that money. So when we were all asked to stay home if we could, I was relieved that I had that 6 months savings. This is exactly what that emergency fund was set aside for. And I am grateful that it was there.

The reason I am writing this is to say, when things go back to normal, set aside the amount of money you need to survive for 6 months. Start saving little by little, but put it in a separate account that you can “forget” about so you won’t touch that money. That is not vacation money or Christmas present money or midlife crisis money… it is for emergencies. It is for if you are laid off or injured or sick and can’t work. It is to keep you afloat until you can figure out a plan.

When the financial adviser told me to make an emergency fund and then ended our call, I felt rejected and disappointed. Still I listened to her and it has proven solid, wise advice.

How do to know how much to save

It’s great that you’ve started saving an emergency fund, but how do you know when you’ve saved enough? To know this you need to keep track of your expenses for a month. I use an excel sheet (just to have the divided spaces) but you can use a plain sheet of paper. You can do this one of two ways:

1. If you pay your bills by writing a check, you can look back through your check register where you keep track of the checks you have written. This will give you a clear picture of what you spend each month on your bills. Write down the amount of each bill and total the amounts to see your monthly expenses. Multiply this number by 3 to get the amount for 3 months of savings, 6 for 6 months, 12 for an entire year. If you’d like a more accurate number, average the amount of the same bill over 3, 6, or 12 months. For example: If your electric bill fluctuates one month’s amount isn’t going to be very accurate. One month could be $50 while the next month could be $80! To average 3 months, add the amounts for three consecutive months together then take your total and divide it by 3 (for the 3 months). This number will give you a clearer picture of what you spend each month on average.
2. Most of the people I know do not pay their bills by check anymore. So, if you pay your bills by credit card you can look back on your credit card statements to see what you paid each month. If you pay directly from your back account look at those statements. Once you have the information do what I explained in #1.

What bills do I include in my savings plan?

The amounts you need to total to get your monthly bill amount are whatever bill you pay monthly that you need to keep your life at the standard you are comfortable with. If in the case of emergency you are willing to cancel your tv service then you do not need to include that cost, however if you plan to keep the tv service you must include it in your plan. Same with eating out and other extra activities.
Include all of your essentials like mortgage, utilities, insurances, loan payments, grocery money, and then anything extra you don’t want to live without for the months you need to use your fund. Also, saving a little extra never hurts since no one can predict the future. I mean, who knew we would all be asked to stay home, schools would be closed early, and a lot of businesses shut down because of a novel virus?!?! Most people did not see that coming! And while we never imagined needing our emergency fund for this occasion (we were thinking job loss or illness) we are so glad to have a little money to keep us afloat during this time.