Financial Resilience
The advantages of starting your emergency fund
Part 2 | Reading Time: 4 minutes
Hello and welcome to part 2 of our 7-part blog series! Today I want to talk to you about a topic that might not be the most thrilling but can make a serious impact in your life: emergency budgeting. Life is unpredictable, with some ups and some downs. During these unexpected and often challenging moments, emergency budgeting can be crucial. Not convinced yet?
Imagine this...
Imagine this: You start out the morning fine just like every other day. You go to work, make a little bit of money and by the end of the day you think you’re home free. Until you find yourself in the emergency room from a nasty spill on the sidewalk. After that, you’re faced with a hefty medical bill that’s only partially covered by insurance, no health savings account to speak of, and your next paycheck is already going to this month’s bills.
Need another example? How about this? Your boss’ boss just announced a massive layoff, and your entire department got cut. As your finances stand right now, would you be prepared for either of these scenarios? According to a 2023 report by Bankrate, the majority (57%) of U.S. adults are currently not able to afford a $1,000 emergency expense. 1
If you don’t have an emergency budget in place, you might find yourself panicking to resolve these expenses. You may have to resort to putting it all on credit cards or even using loans without any way of paying it back in the foreseeable future. Stress and anxiety caused by financial instability can be overwhelming and have a long-lasting impact on our overall well-being. In a Survey of Money and Mental Health using nearly 5,500 people, 86% of that group said that their financial situation had made their mental health problems worse. 2
Emergency budgeting provides us with a safety net for unpredictable moments, allowing us to be ready for whatever is thrown our way without being overwhelmed by financial stress. Planning and preparing for emergencies in advance gives us a sense of control and peace of mind. People who save money report better overall well-being and less psychological distress. 3
A key point of emergency budgeting is understanding your current financial situation. This includes your current income, expenses, and existing savings. A good way to start out is to set aside at least 3 to 6 months of living expenses. For example, if you typically spend a total amount of $2000 dollars in one month, try saving up $6000 and putting that in a separate cash account.
It's OK to start small!
I understand you may not have enough savings to cover several months’ expenses. That’s okay! The main idea is to start small and be consistent. Saving a few dollars every week can make a huge difference. Look at what your current monthly budget is and see if there is anything you can cut back on that is not necessary for your lifestyle to save a few dollars. Perhaps this means cutting out a subscription or reducing how often you use meal delivery services. Everything counts when building towards your emergency fund.
Emergency budgeting isn’t solely about saving money. It’s changing your mindset and being ready for anything life throws at you. By having an emergency budget, we build financial resilience and protect any long-term goals we may have, even when faced with unexpected road bumps.
The mindset shift
Building your emergency savings helps build financial discipline and responsibility. It encourages us to evaluate our spending habits, prioritize our needs over our wants, and make conscious choices with our money. This mindset shift can positively affect our overall financial well-being, extending far beyond emergency preparedness. I encourage you to consider emergency budgeting in your own life. Assess your current financial situation, start saving, and make conscious choices that align with your long-term goals. Emergencies can happen to anyone, being ready financially can make a huge difference in how we navigate those events.
Resources
1 Gillespie, Lane. “Bankrate’s Annual Emergency Fund Report.” Bankrate, Feb. 2023, www.bankrate.com/banking/savings/emergency-savings-report/.
2 Holkar M and Mackenzie P. Money on Your Mind. Money and Mental Health Policy Institute. 2016. Derived from UK-wide survey of 5,500 people with lived experience of mental health problems.
3 Helm, S., Serido, J., Ahn, S.Y., Ligon, V. and Shim, S. (2019), “Materialist values, financial and pro-environmental behaviors, and well-being”, Young Consumers, Vol. 20 No. 4, pp. 264-284. https://doi.org/10.1108/YC-10-2018-0867
2 Holkar M and Mackenzie P. Money on Your Mind. Money and Mental Health Policy Institute. 2016. Derived from UK-wide survey of 5,500 people with lived experience of mental health problems.
3 Helm, S., Serido, J., Ahn, S.Y., Ligon, V. and Shim, S. (2019), “Materialist values, financial and pro-environmental behaviors, and well-being”, Young Consumers, Vol. 20 No. 4, pp. 264-284. https://doi.org/10.1108/YC-10-2018-0867
