We’ve already talked about who needs an emergency fund (you, and everybody else you know), why you need an emergency fund (because emergencies don’t make appointments; that’s why they are called emergencies), and how to get an emergency fund started (review your expenses, create a budget, and open a dedicated savings account with an automatic savings program). So now, a few further tips on making sure you can maintain your emergency fund.
Realistic goals are better than overly ambitious ones. Saving money is kind of like getting in shape: promising yourself to take extremely drastic measures doesn’t work as well as making a few modest lifestyle adjustments and sticking to them. Obviously, the sooner your emergency fund is “fully funded,” the better. But the more unrealistic your goal (e.g. “I’m going to save $5,000 a month for 6 months and BOOM, I’ll be good to go!”), the more likely you are to fall short and stop even trying.
Instead, try coming up with a 3-to 5-year plan with the goal at the end of that time to make your emergency fund “fully funded.” Figure out how much you’ll need to save every month on average to make that plan a reality. And remember, “average” isn’t an aspiration: try to treat it as the minimum you put away every month, i.e. the least amount you put into your fund (this is easier with an automatic savings program, since savings are transferred automatically). Do this, and your plan will only ever be ahead of schedule.
Too little is better than too late. You might feel like you don’t have enough money to start your emergency fund today, or that the amount of money you can afford to set aside wouldn’t amount to enough to make it worth your while. But when it comes to starting your emergency fund, there really is no time like the present. And you’d be surprised how much little sums can add up. Can you manage to put aside $5 a day? In three years, that’s $5,475. Not bad for the price of half-a-sandwich.
Mindful spending, automatic saving. Saving for an emergency fund doesn’t have to mean radically altering your lifestyle. But as you start paying closer attention to your budget, you’ll probably be surprised at how often you spend money on things you really wouldn’t mind doing without. That second coffee? Another round of drinks? That great two-for-one special? That’s all money that you can save for a time when you really need it. By setting up an automatic savings program for your emergency fund, all of your purchases, even those that may not be quite so well thought out, will see you also putting money into your emergency fund. Saving small amounts regularly, without having to think about saving every time you do it, you’ll build up your emergency fund rapidly.
Treat it like a bill. Think of your emergency fund as any other recurring bill that you must pay every month. You know that skimping on your power bill would mean a life of romantic candlelight dinners over jerky and room-temperature soup from a can. So you pay your power bill, even if there are times you’d really rather not. Treat your emergency fund the same way.
Lastly, and most importantly:
Don’t be a thief in the night. Picture this: years from now, your house is on fire. In the chaos, you manage to get your family safe from the blaze, as well as your most precious belongings. Now that those you love the most are accounted for, you make your way to the secret spot where you’ve stashed away the few thousand dollars—bit-by-bit, over the last several years—that will be indispensable in the months to come. Through the smoke and flickering tongues of fire, you can see your secret stash. Careful to avoid the hottest of the blaze, you manage to reach it. You stretch out your hand, inches away, almost there—and a dark figure emerges silent and fully-formed from the shadows, seizes your carefully built up savings, and disappears into the night. What horrible creature would do such a thing??
Well, YOU, if you treat your emergency fund like a piggy bank. You wouldn’t think of taking somebody else’s money, especially in their time of direst need: why would you do the same thing to yourself?
Emergency funds are for emergencies, period. Hands off. Again, if you find yourself wanting to dip into it and find yourself asking “Is this an emergency?” then the answer is almost certainly “No, it isn’t.” Real emergencies aren’t confusable with anything else. You’ll know one when you see it. And you’ll be relieved that some jerk from the recent past wasn’t using it for walking-around money.
By following the above steps (especially the last one! Seriously! Hands off!) you can be sure that your money will be there for you and your loved ones when you need it most. By building and maintaining your emergency fund through automatic savings, you can make sure that no matter what life throws at you, you’ll be able to minimize the damage.