Emergency Fun(d)
Rainy day or Vacation day?
If your car broke down today, would you have enough money to cover the repairs? It’s certainly a question I hadn’t thought of. Sometimes when we’re enjoying life we think nothing can go wrong until it does. For the longest time I used credit cards as my fall-back plan in case I needed some cash. Then it occurred to me…oh yeah, I have to pay those cards back…with interest!
It wasn’t until I started working in tech that I realized the importance of an emergency fund. Layoffs have run rampant in the tech space post pandemic and it’s been disheartening to see. I began to ask myself what I would do in the event of job loss? I literally had zero backup plans. In 2021, I really started to prioritize building up my savings. I had a decent salary so I was saving $500-$1k a month in a high yield savings account which collected nice interest per-month with a 4% yield. Today, I’ve saved at least 10 months of funds to cover my expenses in any unfortunate event or unforeseen circumstances.
One mistake you should avoid is lifestyle creep. I had such a cushion of cash and income coming in, it gave me a sense of arrogance. This past summer I wanted to ball out and certainly did by traveling and buying nice things. The credit card debt began to pile up and I dipped into my emergency fund to pay it off multiple times which set me back. Do I regret it…sometimes. You only live once and I enjoyed myself. But you must have discipline to only reach into your emergency when absolutely necessary.
If you want to travel, use a separate sinking fund specifically for that. Most savings accounts let you create buckets for this need. I personally use SoFi because it collects interest on my checking and savings…and gets me a paycheck 2 days early. This way, you can have guilt free spending! I’m currently building up my travel fund for some international trips this year.
So, how much do you have in your emergency fund? What could you cover if something happened tomorrow? I recommend trying to reach $1,000 in savings as fast as you can to give yourself a cushion. Then, slowly build it up to at least 3-6 months of expenses in a high yield account so it continues to make money!
Disclaimer: I am not a financial advisor and thoughts here are my own. You should always do your own research.