An emergency fund is one of the most important financial accounts you can have. It is there for you during the worst times in your life. It protects you from things like eviction, default, or bankruptcy. It has your back if you lose your job, end a relationship, or get sick or injured. If you haven’t yet started to build your emergency fund, you should start today. Even if you’re only putting $10 a month into it, that’s better than nothing, and it’ll grow faster than you think. But as you’re able to contribute more, you should increase your contribution until you’re able to fully fund it. You should have at least three to six months worth of expenses in this fund for it to be fully funded.
However, it’s one thing to build your emergency fund, and it’s another thing to leave it alone. The point of an emergency fund is to use it for emergencies. If you use it for other things, like vacation or shopping, you’ll run out of money and it won’t be there when you actually need it.
Put Your Savings In a Separate Bank
It’s always important to know and understand yourself and your habits, but it’s especially true when it comes to money. If you know that you tend to transfer your savings into your checking when you’re running low on money, you have to put some barriers into place.
I recommend using a high-yield online savings account for this. Not only will it be separate from your checking account, but you’ll earn more money on it too! Most brick and mortar banks have less than a percentage in interest on savings accounts, but online banks are currently offering more than two percent interest! Depending on how much you have in your emergency fund, that can be a lot of money over the course of a year.
There are lots of online banks out there now, but check out Ally, Synchrony, Barclays, or American Express.
Automate Your Savings
The key to most things related to money is to automate. That’s why auto pay exists! It takes forgetfulness out of the equation. It also takes human nature out of the equation. As humans, we love instant gratification, and spending money feels better immediately than saving money does. If the money moves automatically from your paycheck into your savings account, you won’t be able to spend it before saving it. Set up direct deposit with your employer, or have your bank move the money for you whenever a check hits your account.
Nickname Your Savings Accounts
Did you know that in most online banking platforms, you can rename your accounts? My current savings accounts (both individual and joint) are named thusly: Emergency Fund, Fun Spending, Annual Expenses, Home Improvement, Dog Savings, Travel Savings, and Airbnb Taxes. Yes, I may have more savings accounts than you would like to have, and that’s okay! I just like to keep all my savings goals separate so that I can easily track them. It also makes me feel more prepared and comfortable to see that I’m saving for all of the things that are important to me.
Nicknaming your savings accounts can also remind you what they’re for if you’re tempted to withdraw from them. If you name your emergency fund your “freedom fund” or “fuck off fund”, maybe you’ll be less likely to spend the money on non-emergencies.
Create Savings Accounts for Other Goals
It’s easy to dip into your emergency savings if you’re keeping it in the same account as savings for other things like travel or fun. It’s important to separate your emergency savings from all of your other money. That way, you’ll always know what it’s there for and won’t be tempted to dip into it if you’re pulling out money for another reason.
Have you built up your emergency savings yet?
Maggie Germano
Certified Financial Education Instructor. Feminist and financial coach for women. Founder of Money Circle.