Emergency Funds: Boring till you need it
- Dan Brigham
- Sep 17
- 4 min read
This weekend, life reminded me why having an emergency fund is non-negotiable.
Our washer suddenly died, and replacing the washer and dryer together set us back $1,600.
It wasn’t fun to swipe the card, but here’s the key: we didn’t have to go into debt.
You’d be surprised how quickly you can start to save up an emergency fund after your debt is gone.
And the result
No panic.
No credit card bill hanging over us.
No “I guess we’ll finance it at 19% APR.”
Just a purchase, a sigh, and life goes on.
In this email, I wanted to tell you a little bit about emergency funds:
Specifically what an emergency fund is and isn’t
How to calculate how much you’ll need
Banks to avoid and the banks I use
What An Emergency Fund Is & Isn’t
What An Emergency Fund Is
An emergency fund is a savings account specifically set aside for unexpected expenses that arise in your life.
These expenses are typically unforeseen and often urgent, requiring immediate financial attention.
The purpose of this fund is to ensure that you don't have to rely on high-interest debt, such as credit cards or loans, when the unexpected happens.
It serves as your first line of defense against life's financial curveballs, giving you the ability to respond without having to scramble to find money or take on debt.
Examples:
Job loss
Medical
Urgent Home Repairs
Car Breakdown
What An Emergency Fund Isn’t
While an emergency fund is crucial for financial security, it’s important to understand that not all expenses qualify as emergencies.
Using your emergency fund for non-urgent expenses can deplete your savings and leave you vulnerable in case of a true emergency.
It is not meant for planned expenses.
It is not meant for luxury expenses.
It’s not meant for debt repayment - you should already have paid that off.
And your credit card is not an emergency fund!
Examples:
Vacations
New Furniture
Down payment on a house - you’ll need an emergency fund if you get a house
How Much Do You Need
Step 1: List Your Necessary Monthly Expenses
This should be easy because you made a budget already. Right? Right?
Hopefully, going through this exercise makes you think even more intentionally about what is truly a need versus a Want.
Step 2: Calculate Your Total Monthly Expenses
Once you have a list of your necessary monthly expenses, add them together to get a total.
Let’s assume your monthly expenses come to $3,000 (just an example).
Step 3: Multiply by 3 or 6 Months (Personally I have mine at 3 months)
Now, you’ll need to multiply this total by 3 or 6 months to determine how much you need in your emergency fund:
For 3 months of expenses:$3,000 (monthly expenses) × 3 = $9,000
For 6 months of expenses:$3,000 (monthly expenses) × 6 = $18,000
So, if your expenses are $3,000 per month, you should aim to have between $9,000 (3 months) and $18,000 (6 months) saved for your emergency fund.
Step 4: Determine How Much to Save Each Month
Once you have a target amount in mind, the next step is to figure out how much you need to save each month to reach that goal. Here's how to calculate it:
For a 3-Month Emergency Fund:
If you want to build $9,000 in 12 months: $9,000 ÷ 12 months = $750 per month
If you want to build it in 18 months: $9,000 ÷ 18 months = $500 per month
This gives you an idea of how much to allocate each month to reach your emergency fund goal.
Of course, this can be adjusted based on how fast you want to reach your target and your ability to save each month.
I highly recommend just having this money automatically taken out of your paycheck. It should be very simple to do through your work’s payroll system.
Step 5: Adjust for Your Financial Situation
If saving that much per month feels challenging, don’t be discouraged! Start small. Even saving $100-200 per month is progress, and you can always increase the amount once your financial situation improves.
Reevaluate your budget: Look for opportunities to cut back on discretionary spending (e.g., dining out, subscription services, or unnecessary purchases) and reallocate those funds to your emergency savings.
Windfalls: When you receive bonuses, tax refunds, or other unexpected income, consider putting a portion of it into your emergency fund to speed up the process.
Banks to Avoid & The Banks I Use
There are three popular banks that I would avoid at all costs. Especially for opening a High-Yield Savings Account.
Bank of America
Wells Fargo
Chase
The thing they all have in common: They offer .01% or less on the money you leave in the account.
Meaning if you have $18k in your emergency fund, each year you’ll get maybe $18/yr.
Additionally, BoA and WF are known for shady business practices - don’t believe me, check out Reddit Personal Finance Threads
The Banks I Use
SoFi - offers 4.5% APY on your money. Meaning for $18k you’d get $810/yr
Ally - offers 3.8% APY on your money. Meaning for $18k you’d get $630/yr
I chose these banks partially for the rate, but mostly because i liked how simple they make everything.
They are both digitally native banks so it’s easy to do everything you want from your phone or computer and the UX is very intuitive.
That being said, here is a list of other banks I think are solid for HYSA:
Alliant Credit Union
American Express Personal Savings
Barclays Online Savings
Betterment Cash Reserve
Capital One 360 Performance Savings
Discover Online Savings
Marcus by Goldman Sachs
Synchrony High Yield Savings
Wealthfront Cash
If you are in the market for setting up a HYSA, not only do I use SoFi, but I also get a small commission when people sign up.
So if you do sign up, please use my link - it helps me continue to make free content, courses, templates, etc.
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