Building up my financial wealth brings me the greatest joy of adulthood and responsibility. There are basic ways to improve your monetary well-being and the most simplified way is to create and contribute to an emergency fund!
What is an emergency fund?
Common unexpected adult events that create inconvenience: catching a flat tire, electricity bill higher than expected, or losing your job. Life happens and throws us curveballs. But consider an emergency fund as a shield. An emergency fund is a type of savings used for those unexpected curveballs. Commonly funded at 3–6 months worth of expenses on average, it shields you from financial worry in case "life" happens.
It's very beneficial to have because this prevents you from taking on extra debt to cover your expenses. Whether you're single or married, rent a space with roommates, or own a house, everyone should have an emergency fund. It's your safety net. Given today's events of COVID-19 and price inflation, there is no better time than to start an emergency fund. It's better to have it and not need it than to need it and not have it!
My emergency fund goal
In December 2021, I took about an hour to view all of my transactions from the calendar year. I'm talking student loan payments, income deposits, changes in net worth - the whole big financial picture. I needed to come up with a financial plan to improve my money security for this year. I made eight goals. One of the biggest yet easiest ones to achieve? Building a starter emergency fund of $500!
In January, I signed up with Marcus by Goldman Sacs for their high-yield savings account and made a starter deposit of $51.65. Then, I got a new job working in the marketing department for a tech nonprofit. So now I'm able to contribute money into my account more proactively. I get paid semi-monthly so every payday, I contributed about 30–35% of my paycheck to my HYSA. Even though I currently use the 50/30/20 budget method, I've been making little adjustments to further the progression of my emergency fund goal.
After two and half months, I exceeded my goal and crossed it off my 2022 financial goal list!
*Side note: It's always good to make your emergency fund in an HYSA because you can earn better interest than a traditional savings account.**
How to Start an Emergency Fund
The process of starting a fund like this is simple! Here's a list of how to kick it off:
- Define your emergency goal
What do you think you need to save for? How many months' worth of expenses do you need to save? Is the number reasonable? What bills have higher priority? These questions help you determine how much you can save for an emergency fund and how long it'll take to complete.
- Make a budget
To know where your money comes and goes determines how much you can budget. So make sure you do this to understand how fast you can fund your emergency savings. To keep track of your money, use a pen and paper or a budgeting app to keep you on the path to "savings" success.
- Save unexpected income
From tax refunds to work bonuses, these incentives are perfect for progressing the process of funding your emergency savings. Nothing better for your funds than free money!
- Open an HYSA account
If you were to place $10k of emergency money in a traditional savings account, you're lucky enough to make $5 throughout the year for it. However, place it into an HYSA and base it on a 0.50% rate, $50 is earned. Optimize your savings and increase your earning potential through HYSA's!
This was my first time creating an emergency fund, so I wanted to start off small. As I stated earlier, my goal was to build my fund of $500. Now that it's been finalized, my next milestone is hitting the $1000 mark. I think starting an emergency fund provides you with a good and basic way to stash money away for unanticipated needs that can eliminate the need for taking on credit-card debt or a personal loan.
Saving your emergency money in an HYSA allows you to earn interest while also providing easy access to the funds when needed. If you're having trouble figuring out how to get started, remember the tips: save unexpected income, define your goal, and make a budget that'll help you contribute money to your savings. Very simple and straight to the point! When you stay consistent with a goal, you'll realize how easy it can be.
About the Creator
Writing about life experiences, personal finance and, career insights that impact the millennials and Gen Z culture.