Garrett & Sam Gymsplain Emergency Savings
Life throws curveballs when we least expect them, and having a safety net can make all the difference. But what exactly is an emergency fund, and why should you have one? We'll break it down in simple terms and show you how these funds can be your financial cornerstone in times of crisis. This episode of Financially Naked: Stories from The Financial Gym is hosted by two Certified Financial Trainers, Garrett, and Sam, and they are here to Gymsplain Emergency Funds.
From unexpected medical bills to car repairs that catch you off guard, having an emergency fund is crucial. Garrett and Sam will guide you through the process of determining the right amount to save based on your budget, where to keep your emergency fund and discuss saving vs. paying down debt.
Podcast Notes
Emergencies can happen to anyone at any time, and having a well-funded emergency fund is the cornerstone of a robust financial foundation. They are essential for creating financial stability and providing a safety net during unpredictable periods.
An emergency fund is a dedicated pool of money set aside specifically to cover unexpected or emergency expenses that may arise. It serves as a financial safety net.
How much should I save in my emergency fund?
General financial guidelines are not set in stone, and everyone's situation is unique. Personalizing your emergency fund target is important based on your specific needs, risk tolerance, and financial goals.
Step 1: Track or calculate your monthly expenses. Review your typical monthly expenses, including housing, utilities, groceries, transportation, debt payments, insurance, and other essential costs. Be thorough and include all necessary expenses to maintain your current lifestyle. This is the number you'll start with.
Step 2: Assess your overall situation. Think about your job stability, industry, health, and any additional sources of income or financial support you may have. These factors will help you gauge the level of risk and uncertainty in your situation and help you determine how much to save.
Step 3: Set a savings goal. The blanket recommendation is to save 3-6 months' expenses in your emergency fund. This amount is a sufficient amount for most individuals. Depending on your employment, you may opt to save a more substantial goal, such as 9-12 months' worth of expenses. Freelancers, for example, could benefit from 12 months of savings since their income is variable.
Step 4: Calculate the target amount. Multiply your monthly expenses by the number of months you decide to save for. For example, if your monthly expenses are $3,000 and you want to save 6 months' worth, your target emergency fund amount would be $18,000 ($3,000 x 6).
Where should I keep my Emergency Fund?
A High Yield Savings Account (HYSA) is an excellent option for your emergency fund. HYSAs are savings accounts that provide a higher interest rate than traditional ones.
They also provide liquidity. This allows you to access your funds quickly and efficiently when emergencies pop up. This enables you to have the necessary cash accessible with minimal buffers or wait times to access it.
Using a High Yield savings account for your emergency fund keeps your funds separate from your regular checking or everyday savings. This separation helps keep the money designated for emergencies untouched and readily available when needed.
High Yield Savings Accounts offered by real, FDIC-insured banks provide an added layer of security. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per bank. These accounts, even though online, are safe to use.
Should I pay off debt or build an emergency fund?
Building an emergency fund is one of your most important financial goals. By prioritizing the emergency fund alongside your debt repayment efforts, you not only protect yourself from falling back into debt but also establish a strong foundation for long-term financial health and stability.
Building an emergency fund helps break the cycle of debt by providing a financial safety net. When unexpected expenses arise, you can use your emergency fund instead of relying on credit cards or loans.
By having an emergency fund, you create a sense of financial stability. It reduces the stress and anxiety associated with potential financial emergencies, allowing you to focus more on paying off your existing debt.
Without an emergency fund, unexpected expenses can derail your debt repayment plan. By having savings set aside, you can stay on track with your debt payments and continue making progress toward becoming debt-free.
If you need help with how to prioritize your financial goals, working with someone like a Certified Financial Trainer can help you get on the right track with confidence.
If you want to work with a Certified Financial Trainer to help you determine how much should be in your emergency fund, schedule a free warm-up call today! If you have any ideas or questions for the show, send an email to trainerpodcast@fingyms.com.