đź’µ Four Myths about Emergency Funds
This year is already rough for many folks.
Recently, I’ve had several clients who were laid off from work.
There is an impending writers strike that could stop work for tens of thousands.
Companies everywhere are making cuts.
Strikes, lay-offs and the global economy are really out of your control.
How do you protect yourself?
The Emergency Fund
AKA Rainy Day Fund
AKA Big lump of cash In my savings account that is for emergencies but also maybe a trip to Iceland. (More about that lump sum savings account below.)
What an Emergency Fund is for:
If you lose your job. Once you lose your job bills start coming at you fast. Like a fast ball thrown by a fastball pitcher (Strong analogy!) And so you have to protect yourself.
Medical Emergencies. Our bodies break down and to fix them the bills can often be astronomical. This is your insurance against medical debt.
Depending on your income, and especially if you have a mortgage, think about six months to a year of your monthly spending for your emergency fund.
So, if you spend $7,000 a month, put away $42,000-$84,000
That’s a lot of money, I know.
Can you start with $50/month?
If you have zero in an emergency fund I say start with a goal of $1,000. Save an amount each month in a separate savings account. Watch it build.
But this newsletter isn’t just "What is an emergency fund?”
No, let’s dig deeper.
I present to you:
Four myths about Emergency Funds.
Because being protected during unemployment isn't just about having cash set aside. Here's some reality on how your savings will be used in such a painful situation.
Myth #1: “If I get fired I’ll just cut back on restaurants and zero Target visits.”
Reality : You will spend more when you lose your job.
Let’s say you are now unemployed. Sorry.
You may feel terrible.
You NEED to feel better.
You buy fun food.
A vacation is booked because you need to reset.
Oh, it’s almost Christmas? Well gifts are still going to happen.
In other words, you’ll spend more money to ignore the pain of losing your job and because well, you have more time. Your drone hobby just came back online! So make sure you save based on the amount you spend now, if not more, each month.
Did you see that Emily in Paris episode where she leaves her job at Savoir and fills her time by experiencing all the Paris touristy stuff? Of course you did. You love Emily in Paris. That was an expensive week for Emily in Paris.
Myth #2: “If I lose work I can find another job quickly if I need to.”
Reality: An emergency fund lets you wait for the best job, not the first job.
If you don’t have a strong emergency fund then you may be forced to take the first job you find, which doesn't pay as well and you don’t enjoy.
But if you have an emergency fund there’s no rush. You can work on your resume, reach out to your network, and take some interviews. In other words, spend more time finding the job that pays what you deserve and that you like.
Myth #3: I have a big lump sum in savings for an emergency fund so I’m fine.
Congrats on your cool big lump sum! But...
Reality: That lump is not just for emergencies, but for anything.
Often if we don’t have that money specifically set aside for emergencies it can easily be used for other fun or serious reasons. (Goodbye emergency fund. Hello! Polish Skiing Adventure!) So make sure those funds are locked away.
Myth #4: I’m 100% secure in my job.
Reality: We are all going to need an emergency fund at some point.
It’s inevitable. Most folks leave their job at least once in their lifetime. Even if you have your own business, you’re going to have slow months. So, you’re going to need an emergency fund.
I hope these facts help you better understand your emergency savings. I mean, again, let’s review Emily in Paris. In another episode was fired from Savoir and from Agence Grateau in the same week. It happens to everyone, but especially Emily in Paris. Make sure you’re protected.
Not having a build out emergency fund can be stressful. If you want to build out your savings and control your finances then why not set up a coffee conversation.