Why Having Emergency Savings Is Key
What would you do if you faced an unexpected financial circumstance? In Bankrate’s annual financial security survey, they found that only 40% of Americans could cover any unexpected expenses using a savings accounts. According to their research, this number has stayed pretty consistent. Last year, I learned how critical having an emergency account is.
In October 2018, my role was eliminated and I was let go. This made my life a little…complicated. Between needing a visa to stay in the USA and my significant other having recently decided to relocate to the USA, the timing was not great. Let’s be honest though, there’s a never a great time to be let go. I’m generally an optimist, so I thought:
And enjoy that freedom I did. I credit this possibility to my mother for teaching me to be diligent as hell about saving from a young age. After getting my first paycheque, I opened up what I called my rainy day savings account. Emergency savings sounded too intense. I like the metaphor of a rainy day – it’s terrible but you make it through. I set up an auto transfer so that whenever I was paid, a percentage of that paycheque immediately transferred to my rainy day account. My rainy day came and I managed to live in New York City off those savings for a full 3 months and spend 6 days each in Scotland and Ireland on 2 separate solo trips.
I set up an account and made the decision to save a certain percentage of my earnings. No ifs, ands or buts.
I made use of my bank’s auto transfer feature. I knew when the paycheques were coming in, so I set up when the money would go out.
I made some sacrifices sometimes – when friends invited me out for dinner, drinks, a movie or insert other expensive social event here, I would kindly decline. If I’d overspent a few weeks ago and knew that my budget was tight, I bore the burden of FOMO so that my rainy day fund wouldn’t be depleted.
That money was sacred. It wasn’t money I could use feed my Sephora obsession or brunch habit. Untouchable.
When I was let go, I’d managed to save up enough so that with some minor adjustments in my lifestyle, I didn’t end up in financial ruin. Of course, if I’d opted not take two trans-Atlantic trips, I’d have way more money left but I chose to explore with the time I had. Because an investment in travel is an investment in myself.
So exactly how much do you need you need in your fund? According to NerdWallet, “The answer depends on your financial circumstances, but a good rule of thumb is to have enough to cover three to six months’ worth of living expenses. If you lose your job, for instance, you could use the money to pay for necessities while you find a new one, or the funds could supplement your unemployment benefits.” The folks over there have even created a really handy emergency fund calculator to help you figure it out. They also have a handy tool that helps you figure out which account to put your money in. If trouble strikes, I hope you’ll be ready!
*I have to add that I’m lucky to not have student loan debt. I recognize not living under horrendously, crippling debt makes life a lot easier.