Before you do anything else with money, you need to save an emergency fund. In this week’s video, Chelsea shows you how. Looking for more ways to be good with money? Check out this video:
Hey guys it’s chelsea from the financial diet and this week’s video is brought to you by squarespace and today we’re going to be talking about something very very very fundamental to personal finance which is an emergency fund now chances are if you’re a fan of this channel you’ve probably heard us mention the words emergency fund approximately 7,000 times and
There’s a reason for that because you should think of the concept of an emergency fund as emergency for two reasons number one it exists to cover you in the case of unexpected expenses aka an emergency and number two if you do not have one it is an emergency that you make one no matter what your goals your income or your current situation if you do not have an
Emergency fund you are not allowed to do anything else with your money including paying back loans until you have one long story short an emergency fund needs to be there in case of anything an easy example is if you lose your job or have to make car repairs or get sick but it doesn’t matter what that thing is the point is you have to have enough of a buffer in your
Financial life that every single unexpected event is not financial ruin and if that sounds ridiculous to you about 40% of americans are one $500 emergency away from financial ruin and now how much should your emergency fund be now there are a lot of varying opinions on this but generally speaking it should be between one and six months of total living expenses put
Away we tend to say three months is a good goal now generally speaking it takes a person around six months of concerted effort to save up an emergency fund but that is assuming that a they are making every possible reduction in their budget and b they’re adding sources of revenue wherever they can but if given your numbers it looks like it will take you closer to
A year to save that do not get discouraged the point is you must have it because you’ll never know when you need it without an emergency fund you really cannot have financial stability and let’s be honest having that money socked away gives you way more freedom in your day to day life to make the choices that are right for you instead of the choices you are forced
To make so how do you save an emergency fund you know you have to do it you know it’s the first priority but what are the real strategies to making it happen now first and foremost saving specifically for an emergency fund requires a lot more strict and aggressive budgeting rules because it is such a do-or-die thing for less immediately essential savings goals
You can definitely have a more malleable approach so first and foremost when you’re specifically saving for an emergency fund you need to set goals for yourself that are realistically achievable now depending on your personality type you can make this daily weekly or monthly based goals but the point is they are tailored to how much money you’re bringing in and
How much your daily costs are and it is better to start with smaller more manageable goals that you can meet and then raise rather than setting them too high and getting discouraged now maybe this sounds like it should go without saying but i’m gonna say it anyway no matter how much you are saving every week it cannot be in a place that is tied to your debit card
Basically when you’re trying to hit the atm or spend on something online or whatever it is this money cannot be available to you it can’t be like one of those things where it’s like hey do you want to move some money over worst of all it cannot be in your checking account money that is easily accessible to you at any moment’s notice is money that you are going to
Have an incredibly hard time saving my personal recommendation is to have this money in a savings account at a different bank from where you have your checking accounts so you can’t even be tempted to cross-transfer them but if you’re too lazy or annoyed by that at the very least have it in a separate savings account and one important note here is that unlike a lot
Of other savings this money has to be in a regular savings account and not in like a time deposit or a cd or an investment account because it needs to be liquid the whole point of this money is it’s like in case of emergency break glass and take the money out of the savings account so you can use it but there’s a big difference between the money being liquid on
A day’s notice and honest seconds notice and the difference is keeping it the hell away from your checking account now another thing you have to keep in mind when you’re saving your emergency fund is you must treat it like a line in your budget that is mandatory just like any other bill actually putting that savings amount as a line in your budget will help you do
It because a it will be top of mind and b it will feel like an obligation another thing to remember is to take advantage of any and all influxes of cash as a time to bulk up your emergency fund now whether that’s a tax return a check from your grandmother on your birthday or some unexpect could refund at a store any money that you were not expecting to have needs
To go directly in your emergency fund because it is the money that you are the least likely to miss now as i mentioned before it is almost inevitable for most of us that we’ll have to find some extra sources of revenue to help bulk up our savings now i’m not saying you’ll need these side jobs forever but particularly when saving up your emergency fund consider
Yourself in a state of emergency now a good place to start looking if you want painless extra sources of income is our video on twelve side hustles you can do from bed which you will find in the description but beyond that look not just around your home at ways you could be making extra money but look at the skills you happen to have even something as simple as
Hey i tend to be good with kids means hey maybe you should take on some babysitting babysitting four or five nights a month can easily mean an extra $600 especially when you get multiple parents involved where they combine their kids together with you and you get paid from everyone and between the savings part of the goals and the earning extra money part of the
Goals turn it into a competition either just with yourself or with someone else who’s trying to make savings goals as well a simple fun thing to do is to pick a low-cost treat that you would really look forward to and say okay when i’ve saved my first thousand dollars i will do x for me a small personal celebration is getting one of those mini bottles of wine and
Taking it to like a little indie theater and watching a weepy foreign movie with my big salty popcorn so i can just sort of sit there alone and cry in the dark it’s wonderful but whatever your little me moment is make it a built-in goal to your savings now lastly i’m not gonna lie when you are an emergency fund savings mode you are going to have to cut a hell of
A lot from your budget it’s gonna hurt a little bit it’s inevitable but we found that the best way to offset that is to rotate the parts of your budget that you are cutting heavily from every month so let’s say one month you’re doing no going out to restaurants or bars well then maybe the next month you’re saying no shopping maybe one month you’re switching to
All generic brands for everything you buy but the next month you’re committing yourself to using only public transportation and your own two feet the more you can make every month feel like a distinct and different challenge the less you will feel like you are just being punished all the time it’s crazy how much your brain doesn’t miss something as much when it’s
Changing every month long story short there’s no shortcut to save me emergency fund and you have to do it but if you start looking at these foundations of your financial health not as a punishment but as a gift you’re giving to yourself it’s much easier to stay motivated and there is truly no feeling better than knowing that if the unexpected happens you have it
Covered having that emergency fund can literally be the difference between staying for decades in a job you hate and having the courage to change your career path early on because at the end of the day so many of our choices are just based on whether or not we have the freedom and flexibility to make them you shouldn’t be good with money because you want to be
Rich you should be good with money because you want the freedom to live the life that makes you happy and an emergency fund is the first step to making that happen so as always guys thank you for watching and don’t forget to hit the subscribe button and to come back every tuesday for new and awesome videos bye this episode is brought to you by squarespace which
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Transcribed from video
How To Save An Emergency Fund | The Financial Diet By The Financial Diet