Tag: emergency fund amount
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When I was newly married in 2001, I had $250 to my name in a savings account.
I forgot to mention a minor detail – I had about $27,000 in credit card debt from all my spending in college.
The only good thing was that I had a good job which I am so thankful for. You can read more here on how I got out of debt.
From a financial perspective, to say I was stressed would be an understatement.
I was in a financial nightmare.
You always start going up the moment you realize that you have hit the rock bottom.
That is what happened in my case. I knew I had to change my life style and my spending habits to get out of the self inflicted mess.
Now, I am glad it is history.
U.S. National Statistics on Savings
According to CNBC, “one in three American families don’t have any savings, including 10% of those who earn more than $100,000 a year, according to a survey of 7,845 people by the Pew Charitable Trusts.
A medical emergency or a job loss could push many households to the financial brink. When faced with financial shock, including car bills, home repairs or medical emergencies, 41% said they don’t have enough saved to pay a $2,000 bill.”
Seriously, can you believe it? 10% of people who earn more than $100,000 a year, don’t have any savings.
A Simple Incident Wiped Out My Savings
When Sarah and I were living in an apartment, there was a freon leak, that kept the AC running on and on for a couple of days during peak summer.
Finally, I realized we had a problem, called maintenance, and got the issue fixed.
When I received my utility bill, it was $300 for the month and nearly wiped out my savings.
If you are living paycheck to paycheck, I get it, I have been there.
After I had paid off my credit card debt, I was debt free. However, I didn’t have any savings either.
This went on for few months. I was living within my means and my savings account wasn’t growing.
This is when I realized that I had to do something about it.
Just because I am debt free, nobody is going save money for me. I needed to act on it.
Automatic the Savings is what worked for me.
Building Your Emergency Funds
Automate Your Savings
It is often said – “Pay Yourself First”, or in other words, “first money is the best money”.
I automated my savings to build up the emergency fund.
As soon as I received my paycheck, a portion ($100) would automatically go into a savings account that I wouldn’t touch.
Within one year, I had saved $2400 in savings.
The simple truth was I didn’t see this money in my checking account.
I couldn’t spend what I didn’t have. Out of sight, out of mind. It was that simple.
You might want to consider opening a separate savings account at something like Discover Online Savings Account that offers 0.95% APY and build your emergency funds.
You go use this route like me – this is an old fashioned approach – it works! Or you could look into something like Digit Savings.
Digit is a free service that helps you save money. You sign up and connect your checking account to Digit, Digit uses a proprietary algorithm to perform cash flow analysis.
If it determines there is idle cash that can saved, it will move a small amount of cash (usually between $5 – $50) from your checking account to your Digit account.
You will see Digit saving money 2 to 3 times per week from your checking account to your Digit Account. They guarantee overdraft protection if any overdraft occurs because of Digit’s action.
If want to learn more on how I save money with Digit, please my Digit Savings Review.
How Much Should You Set Aside As Emergency Funds?
Every financial expert has a theory and an opinion. Depending on who you talk to, a financial expert would suggest saving up to 3 months of your living expenses to 12 months of your living expenses. Of course, the more the better.
If you don’t have any savings to your name, this could sound like a mammoth task. Don’t give up.
How about building up your first $1000 emergency fund? Or how about building up your first $500 emergency fund?
Once you reach $500 goal, pat yourself in the back, and get back to building up your emergency funds to $1000. Then, continue till you save up to one month of living expenses. Keep it going until you save at least 6 months of your living expenses.
You owe it yourself to build your emergency funds. No one else is going to do it for you. I am sure if you put your mind to it, you can do it.