Alright, let’s get something straight. Life is unpredictable. One minute you could be happily employed by your dream company, and the next you could be part of a company-wide layoff. Life is wild and sometimes shitty!
You never know where it’ll will take you, which is why you have to keep an emergency fund. Or as it’s increasingly called, a “fuck off fund.” You know, so those unexpected, err, adventures, don’t totally derail your life.
But here’s the scary thing: most of us don’t have a safety net. A recent survey revealed that approximately 70 percent of Americans don’t have a substantial emergency fund built up–and they don’t seem like they’re in too much of a rush to make one.
Having an emergency fund can prevent your finances from taking a major hit when things go awry. Even a minor unexpected expense can snowball into a larger problem with piling debt, high interest fees, and lingering guilt. So if an emergency fund is so necessary, why, then, are so many Americans skipping out on them? Good question.
One theory is that Americans simply don’t know how much money they need to save up. Most experts claim that a healthy emergency fund should cover about six to nine months of expenses. Anything less than that and people will be horrifically unprepared to cover unplanned expenses or handle an economic downturn.
According to Erin Voisin, a director of financial planning at EP Wealth Advisors, many people–particularly millennials–simply have a hard time putting away cash and not feeling tempted to use it.
“Turning down a trip, or a night out, or buying that dress you saw for the sake of keeping that emergency fund unfortunately just isn’t how millennials think. We operate with more of ‘live for the moment’ mindset,” Voisin says. But regardless of why so many Americans’ savings have fallen short, the fact of the matter is that the vast majority of us need to start building an emergency fund ASAP.
The last thing you want to do is rack up debt. And don’t even think about pulling from that 401(k). “Having cash set aside to cover [emergencies] not only reduces your stress but prevents you from the long term impact of having to finance something unexpected with a high interest loan or credit card,” Voisin says.
If you’re using a credit card to front an emergency, it’s likely that you won’t have the necessary income to pay off the debt quickly and you’ll be scrambling to keep up with payments. No thanks!
“If you don’t know how much you spend each month on the necessities, you can’t plan accordingly,” says Andrea Woroch, a nationally recognized consumer and money-saving expert.
That’s why she suggests getting an estimate of your monthly expenses. Jot down how much money you spend on the essentials, like rent, groceries, and insurance. Then take that monthly average and multiple it by six or nine–this is how much money should be in your emergency fund.
If math isn’t really your thing, just use an app like Mintor You Need A Budgetto figure out where your money goes each month.
Accept that your fund it isn’t going to grow overnight.
Set a realistic goal that works for you and your lifestyle. Many experts advise setting aside at least 10 percent of your paycheck each week. If your income changes or you get a raise, adjust your savings amount accordingly.
You may have to cut back on some of those extra expenses to stay on track. Maybe it’s time to finally get a roommate or trade in your car for public transportation. It may feel a little painful at first, but it’ll hurt way less than being super unprepared for a crisis.
Now it’s time to actually start putting away the money.
“Since there’s no immediate or obvious repercussion for missing your savings goal each month, it’s important to treat it like a bill,” Woroch notes.
Set up a separate account with your bank, exclusive to your emergency fund. This way, you’ll feel less inclined to tap into it when you’re eyeing that iPhone 9 or considering a last minute vacay.
If you’re strapped for cash, consider a side hustle. “Expanding your income stream will provide protection against the inevitable swings of the economic cycles,” Woroch says. “Plus, the extra money earned can be used to boost your savings budget and possibly set you up for a new career.”
Fortunately, it’s never been easier to find a side gig. There’s Rover for dog lovers, UpWork for writers, andTaskRabbit for the Jack and Jane of all trades. If you’re an artist, consider coaching creative youngsters via Mentorly, an online arts mentorship platform.
Putting away cash isn’t easy, which is why it’s important to celebrate your milestones. Cutting back too much has been linked to burnout and goal abandonment, so be sure to treat yourself. Think of it this way: You may have to spend a little to save a lot.
Sure, building an emergency fund may seem intimidating, but once you get a bit of money saved up, you’ll be surprised by how easy it is and how good it feels to be in control of your finances.
If only we all had a crystal ball to know when, exactly, those nasty speed bumps were coming our way. But since we don’t, this will have to do.