If you don’t have an emergency fund set aside, then you have a current emergency to take care of. This is money you set aside safely for unexpected costs that may arise, such as:
- having car trouble,
- losing a job,
- needing a sudden house repair,
- racking up medical bills
We get it. It’s not the sexiest item to save for. You’d much rather put money aside for that new car with heated seats, that trip to Italy, or that dream home. We used to think the same way. But trust us when we say the unexpected emergency can happen to absolutely anyone!
Our Story – Unexpected Medical Costs
Speaking of racking up unexpected medical bills, we have first hand experience. Earlier this year, I (Hannah) woke up and my entire leg was numb and I couldn’t walk. Totally out of nowhere. Up until this point, I was always the epitome of health, I even decided to go with a high deductible medical plan this year, because I never get sick!
To say that this was unexpected is an understatement. As we mentioned in our previous post (Marriage: The Highs, The Lows, and the In-between), I went on to have over 50 unexpected medical appointments and, together, we had over $9,000 of medical expenses out of our own pocket. While this was an extremely stressful time (did I mention this was four months before our wedding?), I was not stressed for one second about how we were going to pay for it all, because we had a fully funded emergency fund just for things like this.
When we’re stressed, we all know we take it out on our loved ones unintentionally. What happens when you remove the financial stress from these already stressful situations? You and your significant other tend to fight about money (and other things) less and focus on what truly matters. The beauty of these savings is that it does double duty – it’s an emergency fund and keep-your-relationship-alive-and-well fund.
Now that I hope I’ve convinced you to WANT an emergency fund, let’s get started! While everyone’s opinion slightly differs, we believe you should strive for an emergency fund that covers three-to-six months of your non-discretionary expenses. Said another way, these are the amounts you have to spend each month, such as:
- Rent / Mortgage
- Loan or credit card payments
Not sure how to calculate what your three-to-six months worth of expenses are? Start by using our income and expense tracker for a few months. Then go through and flag those costs you can’t live without. You can download it here, for free!
We know that may sound like a lot, especially for young couples that are usually trying to manage student debt, weddings, and new homes, all with uninspiring incomes. But don’t stress!
Fortunately, you can easily reach this goal in no time, by automating your savings.
Most of us get paid twice a month. To ensure you don’t accidentally spend this savings during a night out on the town or at your favorite restaurant, set up an automatic transfer from your checking account to your savings account a day or two after you get paid. You can start small with $50-$100 transfers and increase it over time as the process gets easier. This method works great for all types of savings goals, but is especially helpful for those goals that tend to be less exciting or more difficult to reach.
Where to Store Your Emergency Fund
Hint: It’s not under your mattress. However, it is important that your emergency fund is easily accessible so that you can get the money anytime an emergency arises. The easiest method is to store this in your traditional savings account. However, these days your brick-and-mortar bank usually doesn’t pay enough interest to keep up with inflation and make that worthwhile.
That’s why we recommend storing your emergency fund in a high yield savings account or a money market fund, which keep your funds safe while paying you more. We love using an online savings account, such as Ally Bank, because we can get a 2% interest rate (as of this post), which is a significantly higher return than what our physical banks can offer. Keep an eye out for future posts where we’ll dive through the pros and cons of where you can stash your cash.
Do you have an emergency fund? Have you had to use your emergency fund for any unexpected expenses? Comment below and let us know!