There are plenty of people who don't have an emergency fund. In fact, nearly 30 percent of Americans don't, according to a report by NeighborWorks America.
70 percent of Americans who do have emergency fund savings are lucky. Better yet, they're #blessed. It is a fucking luxury, just like an overpriced Yeezy hoodie. The reality is that it's just not a reality for everyone, unfortunately.
For the 30 percent of you without savings, let me again recognize the two factors at play: personal responsibility (internal) and how our society works (external). These factors together determine your lot in life.
I'm a firm believer in controlling what we can control. Don't let the external stuff shift your focus to an unproductive level. Do everything in your power to earn enough so that you can save. This means everything from being particular about who you associate with to being particular about how you spend what you've earned.
Why do you need an emergency fund?
Because nothing eases the mind like a giant pile of cash.
It's peace of mind that you aren't one unexpected car repair away from going into debt. It's knowing that you don't have to stay in a relationship for financial reasons. It's having the space and time to find a job that you want rather than just need. I told you this was some luxurious shit.
Emergencies are including, but not limited to the following:
- Not being employed for any amount of time;
- Splitting up with a significant other that you live and share expenses with;
- Taking time off of work for physical or mental health reasons;
- Taking time to figure your shit out;
- An unplanned baby on the way;
- Unexpected home, car or expenses.
What is an emergency fund?
It's usually cash in a savings account. The text-book definition of an emergency fund is an amount equal to 3 to 6 months (more or less) of your expenses. In other words, the amount you save is a multiple of the amount you spend each month.
We can quibble about how much you need, but then we waste our energy and miss the point. I like 3 months of savings because it's the bare minimum and that gives you 90 days for you to figure some shit out. Some people can't sleep at night unless they have 6 or 12 twelve months. Do you, baby.
How to save
- Figure out how much you spend. Example: $3,500/month.
- Figure out how much you'd like to save. Example: 3 months of expenses. $3,500 x 3 = $10,500
- Don't freak out that you need to save $10,500. Whoa, it feels like a lot if you're far away from your goal. Or maybe you already have that saved. Cool, have a beer and pat yourself on the back.
- Break up the savings into a manageable goal. For example, $10,500 can be saved over 12 months if you save $875/month. The same amount can be saved over 24 month if you save $437.50/month.
So to recap/TL;DR
It's in your best interest to have a pile of cash to the tune of a few months worth of your expenses. You can get this pile from your family or from your own efforts or from a combination of the two. This pile will help you not freak out about expenses you didn't plan for. This pile will help you not get into debt. Respect the pile and the peace it gives you.