Have you ever been hit with an unexpected expense and struggled to figure out how you would pay for it?

Maybe it was a car repair, medical issue, or some other serious, unplanned expense.

A retaining wall in a state of failure where the previous owner thought it could be braced with fence posts, perhaps?

A leaning retaining wall made of wooden beams braced by 2" diameter fence posts. The wall is leaning and in a state of failure.
Photo by my structural engineer.

Any financial emergency can be a scary situation to be in. If you don’t have an emergency fund, you’re not alone. A recent survey by Bankrate found that nearly three in 10 (28 percent) U.S. adults have no emergency savings

Imagine the last stressful financial emergency you had – and instead of feeling fear or anxiety, just making a payment from your emergency fund. 

Building an emergency fund is no easy task. If you’re at the beginning stages of your career or of organizing your finances it can feel especially overwhelming. Below, I’ll show you how to start and grow your emergency fund no matter where you’re at in your financial journey.

Here’s why you need an emergency fund.​

Working in a creative field brings its unique challenges. There are many external forces at play that influence the construction cycle, ranging from the federal interest rate and the availability of capital to the unemployment rate. All of those factors lead to the following possibilities:

  • You might be laid off, or you might not be paid.
  • The firm you work for could go bankrupt.
  • A recession could slow the construction cycle, causing a client to go bankrupt or a major project to be put on hold or canceled.

In addition to external forces, there are also some personal possibilities to consider:

  • You or a loved one may get sick.
  • You may need to travel suddenly or unexpectedly.
  • You may need to leave a toxic work environment.

An emergency fund is the foundation of healthy financial habits. Having a dedicated emergency savings account gives you the freedom to deal with whatever life throws at you without the added emotional cost and without going into debt.

It may be tempting to argue that if something unexpected happens you can just put it on a credit card, but there’s an important consideration to make: interest rates.

Credit card interest rates can vary, but some may be as high as 15-30%. The interest rate can compound what was already a financial emergency into an even harder problem to deal with. If the emergency was emotionally challenging, having a monthly payment can be a regular reminder of something bad that happened to you.

Murphy's Law:

If something can go wrong, it will.

How to start and grow your emergency fund

  1. Make a separate account. Your emergency fund should be in a separate account from your regular banking. By keeping that money out of sight, out of mind, you won’t be tempted to spend it on non-emergencies.

    The best type of account to use for emergency savings is a high yield savings account or money market account. This keeps your money accessible if you need to access it quickly, and allows your money to gain more interest than it would in a regular bank account.

  2. Set up automatic transfers. You can do this in two ways: either set up your paycheck to be auto-deposited between two accounts (your primary and your separate emergency fund) or set up an automatic transfer from your primary bank to your emergency fund.

  3. It’s okay to start small. When I first set up my emergency fund, I had a transfer of $10 per pay set up. It was so small, I didn’t even notice it. If I had some unexpected income (overtime pay, safe driver bonus, etc.), I’d toss it in my emergency fund.

    As I decreased my monthly expenses, I took the difference in what I saved and added that amount to my automatic transfer. I left that money alone and it grew a little with interest, too. By the time I had an emergency I needed to deal with, the cash was there.

  4. Another way to grow your emergency fund is to take a look at what belongings you’re no longer using and sell them. Facebook Marketplace, eBay, and Craigslist are easy to use options to make some extra emergency fund money.

  5. If you’ve had a change in your financial circumstances, it’s important to re-evaluate how much you’re saving.

    Receiving a raise, getting married, moving in with someone, buying a house, and having dependents (kids or adult family members) are just a few examples of times when you should make adjustments to the amount you’re saving for emergencies. Generally, any time there is a substantial change in your income or expenses is a good time to see if you need to adjust your savings rate.
“I like to call it paying yourself first. It means putting yourself as a priority.”
Barbara Steinmetz

How much money is enough?

The amount of money you need to feel secure is unique to you – it’s going to depend on your risk tolerance. Risk tolerance is how much risk you are able or willing to take. It’s generally used to describe investments, but I think it also translates to personal risks, too. Here are some questions to consider:

  • How quickly could you replace your job at your current cost of living?
    Generally, 3 to 6 months of expenses is the recommended amount for an emergency fund. If you’re just getting started, make a goal of $1,000 or one month of expenses, whichever is greater.

  • How much debt or expenses do you need to cover each month? The more liabilities you have, the more money you need to cover them.

  • If you recently had a major life change, do you have enough in savings to cover your change in lifestyle? If you’ve paid off debt, you might not need as much in savings as you did before. If your expenses have gone up, make sure you adjust your savings rate to cover them.

  • Do you need to cover an insurance or warranty deductible before certain benefits will kick in? Take a look at your policies and see if you can cover the deductible.

Should you invest your emergency fund?

It’s risky to invest your emergency fund in the stock market. The construction industry is closely tied to the economy. If the market slows, the construction industry generally slows with it. 

Your emergency fund could be at risk when you need to use it, potentially canceling out any returns. If this is an option you’re considering, be sure to save more than your 3 to 6-month target (by roughly 30%) to help cover any potential dips in the market. Architects can be especially vulnerable during market dips and corrections.

Are you ready for a financial emergency?

You can’t plan for everything, but you can look out for your future self. Do you have an emergency fund? Has it helped you avoid any major disasters?

Share your emergency fund stories/questions in the comments!

How to Start and Build Your Emergency Fund
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