The Emergency Fund And Why You Need It


It is better to be over prepared than under prepared. Try to save 15% or more of your paycheck and hold it in a high yield savings account like Capital One Savings or American Express Personal Savings. As your salary increases you should strive for saving over 50% of your salary. Set up automatic transfers from your checking to your high yield savings account. 

Calculate your monthly fixed expenses (expenses you must pay monthly, for example, car payment, cell, student loan payment, groceries, rent, Netflix, clothing allowance, et cetera. Say you have a total of $900 in monthly expenses, that’s $10,800/yr. in total yearly living expenses. Strive to keep 4 years’ worth of living expenses saved in a high yield savings account; this will be your emergency fund or as I like to call it, “Ditch the bad bosses/company fund”.  Four years minimum of living expenses saved makes me feel secure. If five years of living expenses saved makes you feel secure and powerful then do that. 

Why do I recommend keeping 4 years of living expenses in a high yield savings account? Many financial coaches and experts say to keep only a 3 to 12- month emergency fund. What if you get sick or get into an accident and you are out of work for more than a year? Then what? I find that a 4-year emergency fund protects you from the unexpected so that you do not have to dig into your retirement accounts when your 3 to 12- month emergency fund runs out. Also, it gives you the freedom to leave a bad company/boss if you ever have the unfortunate luck to work at a bad company or deal with a horrible boss. After you have set up a 4-year emergency fund you can then divert the money you were saving to your student loan balance.  Some people may say holding that much cash in a savings account will do you no good because you are losing money. Those people are all about greed and how much they can make in the market. An emergency fund protects you from the unexpected because life is unexpected. Be prepared. The coronavirus is one example. 

Keep your expenses low, only buy what you need, not what you want. Read The Automatic Millionaire and The Millionaire Next Door for further tips on being frugal and building wealth. 

You should never and I mean NEVER invest your emergency fund in the stock market. An emergency fund should always be kept in a high yield savings account. Another tip is to have multiple savings accounts for different goals. For example, you may own a home, a home repairs emergency fund is highly recommended. Usually keep at least $20-50k in this account. Or maybe you have serious wanderlust, try keeping another savings account for vacation expenses. 

You should also set up a savings account for business opportunities. You do not build wealth by working for someone else. Multiple sources of income should be on top of mind for achieving financial freedom. Leverage your expert skills and offer online business services. For example, you may be good at troubleshooting computers. You can set up an online IT company and support small businesses with their tech issues. See IMG1 below for “Monthly Fixed Expenses Template” which you can find on within resources page.


Eating out all the time, buying lunch/ Starbucks every day, buying luxury goods, and paying for a fancy apartment will keep you in a financial black hole. I know many young people want to move out as soon as possible but rent, groceries, car payments, and utility bills eat up funds that you could have used to pay off student loans faster. Opt for living with the folks a little longer so that you can achieve financial freedom quicker.

Keep subscriptions to a minimum. Do not let yourself get lured into a plethora of TV, beauty, fitness, and food subscriptions that you will barely utilize. Only commit to subscriptions that you are really going to use. For example, I love reading business articles so subscribing to Harvard Business Review makes sense for me. I also keep TV subscriptions to a minimum by choosing Amazon for all my TV needs. I personally do not believe in fitness subscriptions because I exercise at home but if you use your gym membership then by all means stick with it. Also never pay for warranties. Did you know your credit card offers you an additional year of warranty when you purchase items with it? That’s right! 

Mint is an online budget planner and tracker. It lets you view all your assets, expenses, debt, calculates your net worth and allows you to create and track financial goals.  I highly recommend that you use this tool to create a budget, keep track of your expenses, investments, and financial goals. 

Like what you read? Give this post a like! Want to learn more about how to manage your money, buy “The Student Debt Manifesto: How to Pay off Student Loans and Gain Financial Freedom” e-book which is a multi-generational book that shows you how to manage and pay off debt and provides tips for building wealth.

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