July 28, 2020•465 words
If you're one of the zero people who avidly read my blog, you'll have noticed that I had to move in with my parents thanks to pay cuts from COVID-19 causing an economic downturn.
In one day, I had to pay my lease cancellation fee, book an expensive moving truck, and pay taxes.
Needless to say, it was an expensive day.
The only reason I got through it without loading up on credit card debt or taking a personal loan was thanks to my emergency fund! If you're not familiar, an "emergency fund" is a highly liquid and accessible pile of cash that is only to be used in the most dire of circumstances. Things like your car breaking down, a surprise trip to the vet, or even a pandemic that is ravaging our people and economies.
Most experts recommend having three to six months worth of your average monthly spending sitting in a savings account. That can be a daunting number to achieve, but it's possible! If you throw a small amount at it every single month, it will eventually begin to fill up and one day you'll look back and be amazed at the safety net you've built for yourself.
If seeing that pile of cash is too tempting, I would recommend making a account with a new bank or credit union, ideally one with a high interest on their savings account. That way, it's a little bit more difficult to get to, since you're not seeing the money mixed in with your regular accounts. But since it's in a savings account, the money is still available to be withdrawn at a moments notice when a true emergency hits.
I made the mistake of neglecting my emergency fund for years. I was focused on investing money, and a big pile of cash seemed totally counterproductive to wealth-building. I was lucky enough to not get hit by any emergencies during that time, and thankfully I started building up my fund a few months before COVID really took a chunk out of my finances.
Don't be like me. I got very lucky. If you're throwing money into investments without at least one to three to six months worth of spending in an emergency fund, you're on thin ice. You might end up in an okay situation. But the world is random, and you never know what will happen.
So, if you don't have one yet or your emergency fund is underfunded, start today! I use Ally for my fund, but there are lots of online banks out there with great rates. Grab an account, set up an automated transfer every couple weeks, fund it with any extra cash you might have, and start sleeping better at night!
The One Thing: Build an emergency fund