This week marks a big accomplishment for me – I have reached my second emergency fund (EF) goal of $3k, after a year and a half of saving.
My approach was simple: take 4% of my take-home pay in 2017-2018, bump it to 5% in 2019, and make a transfer from savings to checking each pay day (usually pre-scheduled to go through on pay day, so there were no excuses). Then, each time I reached $500, I sent a check to my high-yield savings account. I also added a bit of extra savings that I had thanks to my side hustles, until I reached $3k.
Here’s why I chose to save instead of solely paying down debt:
- It lessens the possibility of going into debt due to unplanned expenses outside of my budget and sinking funds, such as:
- an emergency vet visit
- a family emergency, which might entail a last-minute plane ticket
- an unexpected car repair
- emergency medical bill(s) (my health insurance is terrible)
- It makes me feel more secure – it is there if I need it, but sufficiently far away for me to not spend it unless necessary.
- It’s parked in a high interest savings account that garners me a 2.25% interest rate – 2018 was, in fact, the first year I received a 1099-INT, and the free money that grows from savings feels *good.*
- I’m already paying down debt. In fact, I regularly throw 35-45% of my take home pay towards my debt. But my debt level is so high (nearly twice my income) that it will be years before I pay it off, and the likelihood of *something* going wrong in that time is relatively high, I feel. Again, the EF makes me feel more secure. To live paycheck-to-paycheck for the next five years (estimated time to pay off my debt) seems unwise.
- I am a limited-term employee. My contract ends in June and in the worst case scenario that I cannot find another job before then, my emergency fund plus my paid PTO will see me through about 2 months.
This is my list, but there are lots of other resources out there about why you need an emergency fund (here, here, and here as well) – and most would agree that you should save 3-6 months’ living expenses. But that would take a long time on a limited salary (several years), and so this (a goal of $3k) seemed a better option for me.
What’s next? There’s a part of me that wants to aim for $4k, but I think for at least the next couple of months, I’ll funnel my 5% into my sinking funds, build those up a little more (especially since my Very Expensive Feline needs some serious dental work), and then think about how I can add some additional debt repayment to the mix.
(all of the links here are articles I found helpful when researching what an emergency fund is and how I could build one)