Yes, You Do Need an Emergency Fund

I’m not proud to admit it, but if something unexpected were to happen to me right now (like if I needed to fill a prescription that isn’t covered by my insurance, or if my internet friend who is a Nigerian Prince required just a few thousand dollars more before he could start sharing millions of euros with me), the only emergency funds I’d have would be my high-interest credit card. But only until it maxed out, which wouldn’t take long. Or my parents, who don’t charge interest but would surely cost my dignity. And unexpected expenses pop up often! “Shit,” as the man running beside Forest Gump discovered, “happens.” What’s more, it happens all the time.

Last year, right around Christmas, you’ll recall that federal workers in the United States were forced to go without pay for five weeks, when the government went into a partial shutdown. And while I’m not an employee of the federal government or a citizen of the United States of America, that news story was both frightening and, weirdly, comforting: about 80% of American households live paycheck to paycheck. I maybe wasn’t in the best of company, but it was a very big company.

When you don’t seem to make enough to save, hearing that you need an additional savings fund for emergencies can seem hopelessly daunting. But, fun fact, neglecting to prepare for an emergency won’t stop an emergency from happening. Pets get sick. Cars break down. Jobs disappear. Awesome cousins have awesome destination weddings during awesome peak vacation season. So, even if you have debt (like me!), it’s time to at least start building your own little safety net— let’s call it your “In-Case-Shit fund” (h/t to an old Chris Rock bit).

Now what? Figure out how much you need and go after it.

This In-Case-Shit fund isn’t meant to pay off a mortgage or your future kid’s university. It doesn’t have to be huge, or hugely specific. Vague goals are much less daunting!

If you have high-interest rate debt:

Because you live on credit and a prayer— aim for saving around $1,000 if you are single, or $1,500 if you have dependents (that includes Dave. Dave is your dog. I have just named him.)

If you don’t have said debt:

Aim for enough to cover 3-6 months worth of expenses; 6-9 months if you’re a freelancer. Of course, in order to do that, you’ll have to know how much your expenses are—something Irrational Financial Avoiders (IFAs) like myself don’t like to think about. But here’s help.

You can’t spend money you forget you have.

The best way for IFAs to save money is to exploit our natural tendency toward avoidance. Figure out how much you can give up without too much difficulty, and have your bank automatically take that from your paycheck.

The goal should be to put away a $100 or so per month, but if that isn’t feasible right now, there’s no sense in setting a goal you won’t be able to keep. Obviously some sacrifice will be necessary if you want to save, but expecting yourself to suddenly thrive under a self-imposed austerity program is as unrealistic as thinking you don’t need to save at all.

Don’t let that money just sit there—make it do a thing! Namely, grow.

How many accounts should you have? One more at least! Shop around for the best high-interest savings account (“HISA”). You’ll also want your savings account to be separate from the account you use for day-to-day transactions, have low or no transaction fees, and allow you to make withdrawals without penalty.

Then, onto the next one.

After a month or two of getting used to living with marginally less because you’re saving marginally more, it’s probably time to think about tackling some of that debt. You’ll want to avoid it, I know, but look how good you were with your emergency fund. You show your IFA tendencies who’s boss.