Emergency Fund

Emergency fund.

The first change that my wife and I had to do is build up our emergency fund. When I had the “light bulb” moment, we wanted to tackle this first. I was not surprised to find out that only 41% of Americans would be able to cover a $1,000 emergency with savings (https://www.cnbc.com/2020/01/21/41-percent-of-americans-would-be-able-to-cover-1000-dollar-emergency-with-savings.html), I know this number is even higher for Africans and immigrants in the diaspora. How many times have you been asked to donate to a fundraiser for sending a loved one home for a burial? Too many families are living above their means, or just barely surviving. 

Ask yourself: 

-If my car gets a flat tire, do I have enough funds to cover it?

-If I get laid off, do I have enough funds to hold me until my next job?

-If my mama asked for some money, do I have enough to give her? 

-If I need to fly to Kenya, or your home country, state, for an emergency do I have enough funds to cover that? 

If you answered no, or maybe to any one of these questions then you NEED an emergency fund. 

What exactly is an emergency fund and why do I need one? 

As the name indicates, an emergency fund is a stash of cash saved for those unplanned, unexpected life emergencies. Flat tire? All good, I have money for that. Family needs tuition back home? All good, I have that covered! When you have an emergency fund, you will not need to use your credit card, rack up the debt and figure out how to pay for it later!  

How much emergency fund savings should you have? 

All the financial gurus recommended 3 to 6 months of your monthly expenses, which is great. I recommend starting with at least one full month, untouched, in a high yield savings account. Why? Because, life has its challenges, starting small will provide motivation to increase. (Monthly expenses means your basic living expenses.) 

For instance, my monthly expenses are currently at $3,000 – mortgage, home insurance, auto loan, car insurance, utility bills, groceries. My 3-month emergency fund is about $9,000. Does that number scare you? Do not let it. Once you calculate your basic living expenses, your “have to” you may have a lower or higher number, this is why I recommend starting with 1 full month and moving up from there. 

How do I build up my emergency fund? 

Pay yourself first! Always pay yourself first! Almost all jobs provide direct deposit and the option to have multiple bank deposits. I recommend setting up a certain percentage to go directly into your emergency savings account. This way, you do not have access to that money and can plan out your expenses with the remainder of your salary. The goal is to get to 3-6 months’ worth of savings but start with 1 month and work your way up.

Where should you save your emergency funds? 

I recommend opening up an online high yield savings account or a certificate of deposit, separate from your checking account to minimize temptation. Your emergency savings should be easily accessible and liquid, meaning you are able to get to it when you need it without having to wait. But you do not want it to be so accessible that it becomes easy for you to spend it.

Emergency funds allow you to live your life without pressure of uncertainty. You expect the unexpected with grace because you have the means to tackle any emergency that comes up. Start saving today!