After I had my son, I considered all of life’s potential twists and turns. It became clear to me that I would never feel 100% comfortable with only $1,000 in my emergency savings. With the challenges of being a single mom, I knew that amount for an emergency simply would not suffice. Fixing life’s problems can be expensive, and not having the money to do so consumed me with worry, and I couldn’t sleep.
While having $1,000 set aside for emergencies is certainly better than nothing, it is often not enough to cover many of the crises people face today. As I have mentioned before, things, like replacing tires or paying for a significant medical emergency, are realities I want to be prepared for — so increasing my emergency fund was the right thing to do.
For my peace of mind, I decided I needed at least $5,000 in my emergency fund. It was worth everything it took to make it happen. By increasing the amount for life’s unforeseen events, I no longer lost sleep worrying if I would be able to take care of my son if something happened.
Having a safety net is critical on your financial journey, and in life. It's all apart of Step #2 in my Financial Freedom Steps.
Do you really need an emergency fund?
An emergency fund is absolutely critical for everyone interested in being prepared for life, after all, it is filled with so many things that we never plan for. My emergency fund brought me peace of mind, something that is priceless. I know a lot of people advise starting with $500 to $1,000, but for me, I found it lacking.
A visit to the dentist’s office can run $600 to $1,200. Tires can easily set you back $600-$700. What happens if you need a new water heater? It can run $400 to $900. So, can you see how easy it is to wipe out an emergency fund? I wanted the added security and was willing to delay paying off some debt early on so I could build mine up.
One of the most significant benefits of establishing an emergency fund early on in life is that you will be well-positioned to handle many of life’s financial pitfalls. (Check out Cit Bank to set up an emergency fund.) When you don’t have to pay for emergencies with credit cards or when you avoid that awkward position of having to borrow money from friends or family, it is freeing.
Unfortunate events happen to all of us, so having an emergency fund is absolutely vital to maintaining your quality of life. By having your emergency fund in place before an inevitable need ever arises, you will be in the driver’s seat in situations that might otherwise have left you scrambling for solutions. Knowledge is power, and an emergency fund is security.
How much should I have in my emergency fund?
As a single mother, my number one priority is to ensure that my son is well cared for. As you know, I felt $5,000 was a better starting point because I had a child. Later, I started working to raise the amount in my emergency fund to three to six months of earnings.
Whatever you settle on as your “peace-of-mind” amount, make sure it is right for you. After all, the emergency fund is there to provide some financial security for you and your family. You can start your emergency fund online at Cit Bank. You might sleep well knowing you have $2,000 set aside — it really does depend on what you feel is needed. I know that I did not feel protected from life’s unexpected emergencies with only a $1,000 set aside.
When should I start my emergency fund?
If you are behind on any payments, get caught up. If you are current on all your bills, then start building your emergency fund. The key is to start. That’s the whole trick to reaching your goal of an emergency savings fund: Simply start saving for it. Every little bit counts.
Tips to build your emergency fund faster
When it comes to saving for an emergency fund, a great place to start is with honing in on your budget and decide on a savings goal. If you have read my 9 Steps to Freedom, then you know your plan has to fit you and your individual life.
Without having a plan, it will be challenging to get ahead. So, set your goal and come up with a plan.
Once you have a goal set, look at your budget and figure out how to transfer money regularly over to a savings account. Most savings accounts are free and come with no added fees, but remember to make sure it is FDIC-insured up to $250,000. Opening a savings account in a separate institution (like Cit Bank) from where you normally bank is a very good idea, but more on that in just a bit.
Another critical step to quickly establishing an emergency fund is to automatically transfer money so that you get out of your own way. Automated transfers can make a big difference from a psychological standpoint in that you are taking yourself out of the equation, leaving you primed for success at reaching the all-important end goal.
If you don’t have enough money right now to reach your emergency fund right now, then look to cut expenses or make more money. Maybe you will make coffee at home instead of stopping by the coffee shop every day on the way to work to help jumpstart your emergency fund. Perhaps you will take advantage of cashback grocery apps, like Ibotta.
If you want to make some extra cash, there are plenty of ways, thanks to side hustles and the gig economy. Maybe you will pick up a little side gig you do from home that you find on Steady, an app that helps you find freelance work in your area or remotely.
Emergency fund vs. savings account
Do you remember how I suggested setting up a savings fund at a different institution than you regularly bank at? This is because it is all too easy to use your debit card to access your emergency fund when it is kept alongside your checking account.
An emergency fund is exactly that — money set aside for true emergencies. So, it should not be tapped into for regular, predictable purchases or impulse buys because the deal is too good to pass up. Your emergency fund is to protect you, and it is not because you forgot to put something in the budget or for large, planned expenses (that’s what a sinking fund is for).
Use your savings account for expected specific goals. Your emergency fund should be there for the unexpected.
Where should I put my emergency fund?
Your emergency fund should be easy to access and readily available if you need it. That said, it shouldn’t be too easy to access where you are tempted to use it for non-emergency expenses.
A separate savings account located at another banking institution away from your standard checking account is a great option. This will give you the ability to have a debit card or check-writing privileges if you need it.
Personally, I always like to have some cash stored away. For me, it's about balance. Having cash on hand gives me the comfort I need to take care of anything immediate. A separate savings account gives me the satisfaction of knowing I have a plan in case something comes that is more long-term.