Basics of an Emergency Fund


I am going to throw a situation at you and I want you to think about what you would do if you were in the spotlight of this scenario: you walk into work to find out that you unexpectedly lost your job. The only income you have is your final paycheck that you will receive next Friday. Your utilities are due next week and your rent is due in 2 weeks. What would you do to insure that everything is paid on time? Would you put it on a credit card, beg mom and dad for help, or just ignore everything altogether?

Now imagine if you had an oh shit emergency fund in place. You would be able to take a deep breath because you would have enough money set aside to get you through your next job hunt. If there is one guaranteed thing that is going to happen to you as an adult it's this: unexpected shit happens. Frequently.

So what’s an emergency fund?

Ideally, your emergency fund will have 3-6 months of expenses saved in it. To find this number, calculate how much it costs you to survive per month (add up your rent, utilities, gas to get to work, food for the month, etc.) I know that number can feel a little overwhelming to save if you’re just beginning. Start with a goal of $1,000 to be put into a separate account from your day-to-day checking.

What do you use an emergency fund for?

Emergencies is the obvious answer. But what defines an emergency varies depending on who ask. Ask yourself these 3 questions when trying to decide if an expense counts as a true emergency:

  1. Is this an unexpected expense that needs to be paid right away?

  2. Is this expense necessary right now?

  3. Is this expense urgent and can not wait until I can save up the funds?

In a nutshell, buying a dress for your best friend’s wedding is not considered a true emergency, but having to rush your pet to the vet at 2am does.

How can I start saving for an emergency fund when I’m broke?

Now this is the million dollar question. It seems impossible to set aside money when you’re barely hanging on until your next paycheck. That’s why I suggest getting your $1,000 saved as quickly as possible. Couple easy ways you can do this:

  1. Start a change jar. Add fives, singles, quarters, dimes, and nickels. Give your plastic a break and use cash for all purchases. Every time you get change back, add it to the jar. Your total will add up quicker than you think. I did this before travelling to Florida for vacation once and was surprised when I had over $200 saved in just a couple months of adding my spare change.

  2. Sell things you don't want or need anymore. Put items up for sale on Facebook through their marketplace or craigslist. This will clear up cluttered space while boosting your emergency fund. Win-win!

  3. Cut back on unnecessary expenses. Cut back your coffee run from three times a week to only one. Saving that $10 a week might seem like small change, but that’s $40 a month, $520 a year!

  4. Pick up a part-time job or side hustle. I know, I know. Adding another job to your already busy workload sounds exhausting, but think of it as a temporary feat. Once you have your emergency fund saved, ditch the side hustle if it doesn’t bring you the joy you want.

Now that you know the basics of an oh shit fund, get your ass out there and start saving! Once you have your first $1,000 saved, make your next goal to save 3 months worth of expenses. Emergencies will always sneak up on you when you least expect it, it’s the inevitable of adulthood.

What ways are you going to prepare your emergency fund? Drop me a comment below! If you want to stay up to date with my latest posts, like me on facebook!