The Emergency Fund Guilt (how to make saving an emergency fund painless)

You’ve probably heard about the concept of an emergency fund in a personal finance course, or maybe your grandparents have one, or maybe you heard some mostly-bald-guy named Dave Ramsey talking about it... Growing an emergency fund is an incredibly important and achievable step that any young person can use to set themselves up for greater financial freedom and security. Unfortunately, many people (often even older adults) don’t have ANY savings, much less an emergency fund. When an unexpected expense occurs, they are left with a painful financial crisis that could be minimized or avoided altogether with some simple planning and action steps. Saving is a habit, and it takes some time and effort to grow an emergency fund; however, as a former college student and fellow young adult I would go as far as to say that this one step is a crucial safety net that will help you attain financial success and independence going forward! Below are some tips to help get you started and make saving (almost) painless. Set a goal Goal setting is the first thing you should do after you decide to save for an emergency fund. If you’re just starting to save, $1000 is a reasonable goal that is short-term enough to interest and engage those new at being financially savvy, while still being a large enough amount to cover many financial catastrophes. After you reach that goal, the next suggestion is to save 3-6 months worth of expenses (so if your expenses are $2000/month, that's between $6000-$12000). Having this larger amount tucked away is a great way to avoid debt and prevent disaster should you be hit with a huge financial need in the future (such as losing your job). Make savings automatic with an app Saving is easier when you take the work out of it! Consider letting an app save for you! Apps like Qapital automatically deduct from your checking account to help you reach savings goals (like buying a car, or planning trip to Europe). You can set your own goals, along with “rules” regarding how you would like the app to help you save for that goal. For instance, you can program the app to save a certain amount every day, or every week. This is a quick and easy way to micro-save without noticing it too much. Acorns is another fun savings app that allows consumers to dabble in the world of micro-investing. You can link the app to credit cards, checking accounts, and savings accounts and turn on “round-ups”. This simply allows Acorns to round-up every purchase you make to the next dollar, and automatically invest the change for you! It’s a great way to remove money from your immediate access and provides exposure to the world of investing while often bringing you higher interest rates over time. (I started using this app about three years ago and have earned a 5.59% overall interest rate since! It really makes a difference as your money starts to grow.) Save a percentage Another easy way to save without really “feeling” it is taking a set percentage out of every paycheck you receive. Start with anything--5%, 10%, 15%--as it will quickly add up! As soon as you are paid, calculate your percentage and immediately transfer that amount to your savings account (this is especially easy if you keep an app for your bank on your phone). When I first started saving, it worked well for me to save 10% of my paycheck because it was so easy to calculate, and it removed that amount from my “spending money” (how a lot of people view their checking account) and out of sight into my savings account! Keep it separate I CANNOT EMPHASIZE THIS ENOUGH! Do NOT keep your emergency fund in your checking account! I suggest keeping it in a savings account, where it’s out of site but available for immediate access if needed. It’s just too tempting to have your emergency funds sitting in your checking account, ready to soak up some surplus spending. After you have saved your first $1000, I recommend putting the remaining funds in a more removed account with a higher interest rate. The point is not so much what kind of account you keep your emergency fund in, but rather ensuring that you have that money set aside to cover unexpected predicaments. Only use it for emergencies (DUH!) This seems so obvious, but many people believe the myth that an emergency fund is so you can “treat yo’ self” on a bad day, take an unplanned shopping spree, or buy a new Ipad! THESE ARE NOT EMERGENCIES! Emergency funds should only be used in the event of an emergency! For instance, last year I used some of mine while I was unemployed for a period of 3 months. Other great examples of things you should feel okay about using your emergency fund for include: your car breaking down and needing to buy a part to fix it, traveling to your hometown for a funeral, or breaking your arm and making an unexpected visit to the ER. Save extra income/cash Another great way to quickly save up an emergency fund is to save any extra income or cash. You got $500 back on your tax return? Great! Watched your neighbor’s dog for a week? There’s an extra $75! Babysat for a couple’s date night? $50 more to put away! Your grandma sent you $25 for your birthday? You’re one step closer! Instead of putting extra income towards a splurge purchase, consider immediately adding it to your emergency fund. Obviously, you should use your regular income to pay all your bills, but this unexpected, extra cash can really elevate your savings progress without taking away from any of life’s necessary bills and purchases. Reward yourself Especially if you are not a saver by nature, saying “no” to impulse buys and saving your spare change can be a bit painful. Give yourself a guilt-free reward for making good long-term financial decisions when you reach savings milestones! This could be something as simple as ordering your favorite coffee drink or splurging on fro-yo with friends after you intentionally declined treats and brought coffee from home to work all week. Or, your reward could be a bit more elaborate… What if after you saved your first $500 you allowed yourself to go on a $100 shopping spree, or dress up and eat at fancy restaurant? What a fun saving incentive! See, saving doesn’t have to be meticulous and boring, it can be a way to allow yourself to enjoy the things you really like guilt-free! While having an emergency fund is very necessary part of building financial independence and preparing yourself for success, it doesn’t have to be strenuous endeavor. By simply implementing a few new simple savings habits, you can quickly and easily have a financial buffer for the unexpected. Now is the time to take action, even if you only have limited resources, because the habits you built now will follow you as your income grows. Plus, who doesn’t want to have the peace of mind that comes with knowing that you are prepared for the unknown and inevitable? It’s time to create your plan of action and start saving! Written by Deborah Dunman

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