Never saved for an emergency? Here's how to do it
THE STACK #17With the economy in a dumpster fire, having an emergency fund should be your primary focus.
An emergency fund is money set aside for unforeseen events.
These events are often unpleasant and could take a toll on you mentally and financially.
While we keep our fingers crossed and hope nothing bad ever happens, if it does happen, we want to ensure we're at least financially prepared.
If you've never saved for an emergency, here's how to do it.
THE STACK
Determine what an emergency is
I had trouble keeping my hands out of my emergency fund because I hadn't properly defined what a true emergency meant.
I dipped into my emergency fund to buy things on sale, travel or whenever a friend asked to hang out.
Now, I use my emergency fund for major events such as:
○Job loss
○Home loss
○Unplanned relocation cost
○Medical emergency
○Fatal car repair
○Family/Friend medical emergency
○Emergency travel to attend to care for a loved one
Calculate how much you'll need
The recommended amount to save is 3 - 6 months of expenses.
This will vary based on your circumstance, such as job security, being self-employed, medical condition, the area you live in, the state of the economy etc.
How long will it take me to recover financially if I lose my job or face severe financial hardship?
This is the number of months you need to save for.
Add 1-2 months for extra wiggle room.
Ultimately, the amount you save should bring you peace.
My friend and money coach Caron calls this the Peace of Mind Fund, and I love it because this is what your emergency fund should do for you.
Start with your basic needs or bare-bones budget, such as:
○Housing
○Food
○Transportation
○Utilities
○Medicine
Multiply the total of these expenses by the number of months you need to get back on your feet.
Emergency fund = Monthly bare-bones budget x Number of months to get back on your feet
Example:
Bare bones budget = $2,000
You need six months to get back on your feet
Emergency fund = $2,000 x 6 = $12,000
Create a separate account
Open a High-Interest Savings Account in a bank separate from your chequing account.
This will help you stay disciplined from dipping into your EF.
You want to create inconvenience in accessing these funds if you're prone to constantly dipping into your EF.
Automate your deposits
Set a recurring payment on payday to automatically deposit a certain amount from your chequing account to your emergency fund.
This will help you stick to your goals.
Don't be afraid to use it
If an emergency arises, don't be afraid to use those funds.
I've found that I often feel bad when I use my EF because I feel like all my efforts have been eroded.
You might notice these feelings come up.
I often have to remind myself that this is the reason I had the funds in the first place.
Refill after you deplete
If you use your emergency fund, replace it when things return to normal.
THE TOOL
EMERGENCY FUND TRACKER
Tracking my goals is my favourite thing to do.
It helps me stay motivated.
I created these fun emergency fund trackers, which you can download for FREE.
If you use them, tag me on Instagram so I can cheer you on.
THE ACCOUNTABILITY
Open a High-Interest Savings Account (HISA).
Rename it to something fun like vex money, life happens, Murphy funds, FU fund, peace of mind etc...
I would love to see the names you come up with!
If you're looking for a HISA, you can check out some of my favs:
Neo Savings - 1.8%* on a HISA ( referral code: T5C9Z4N2)
EQ Bank - 1.65%* on a HISA and 4% on a 1-yr GIC (referral code: EDUEK9229)
*rates as of the time this post was published.
THE COURAGE
THE KNOWLEDGE
EMERGENCY FUND
This is money set aside for unforeseen events such as job loss.
SINKING FUND
This is money set aside for a planned/upcoming event such as a vacation, wedding, car purchase etc.
That's it for this week's STACK!
Talk to you next week,
But until then...Keep Stacking!
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