Ah, the emergency fund…that well-known, but often neglected, aspect of most of our financial lives.
According to a survey conducted by bankrate.com in 2019, roughly 28% of Americans had no emergency fund, at all; another 25% had an emergency fund that would not cover at least 3 months of expenses. You may have also read about the statistic from the Federal Reserve’s Report on the Economic Well-Being of US Households for 2018 that stated that just 61% of Americans would cover a $400 surprise expense with cash or a cash equivalent. While that number is up from 59% from the 2017 report, and from 50% in 2013, that still leaves 39% of US households needing to borrow money to cover that $400 expense. (12% responded that they would not be able to cover such an expense, at all.)
Why doesn’t the emergency fund get more respect?
Now, before we go on, I’m not here to judge anyone for not having a certain amount of rainy day money in a savings account somewhere. There’s a lot of financial situations out there, no doubt impacted by a certain virus and economic shutdown that is dominating our news cycle these days. In fact, I am sitting at around just 2 months of expenses in my emergency fund as I am writing this (but, on my way to the 3 to 6 months most financial advisors recommend), so I don’t think I’m in a position to point fingers even if I wanted to.
There are some mental roadblocks that can keep us from saving some money for the unexpected, as well. When our personal economies are good we don’t feel a need to save, and when things are bad it looks like there isn’t any money left to save.
Add in the fact that life’s little (and not so little) surprises don’t let up to allow us to save up those 3 to 6 months of expenses, and we can get frustrated when our balances get knocked back down just as we were starting to see some value in the whole process.
(I can remember my dad voicing frustration when the car’s alternator needed replacing right after the savings account balance crossed a milestone for my parents…back down that balance went. Again, and again.)
Yes, life can make you think that the stability of having adequate cash on hand for emergencies is either not necessary (it is), not possible (it is), or not worth the effort (spoiler alert…it is).
For me, I had to start thinking about our humble little emergency funds in a slightly different way? What if the money I am saving for emergencies offered me both stability AND a little something extra on top of that? What would that something extra be?
That answer is, of course…cleats.
Give Your Money Some Good Cleats
I’ve had, at least, a minor obsession with cleats ever since one of my friends showed up with a pair of black shoes that had hard rubber spikes on them when I was in elementary school.
This friend told all of us that these magical shoes were cleats, and they helped you run faster. The main thing I noticed was that he could kick up way more dust than I could when we would “peel out” on the playground. After waiting out my mom’s irrational opinion that my old, worn-out shoes still fit my feet and were actually brand new only a few weeks ago, I would get my own set of cleats to kick up those clouds of dust and clumps of sod with the best of them.
Some time later, I would get a lesson on a more proper use for cleats while watching a football game on TV. The field conditions during this particular game were not ideal due to a passing rain storm, and the broadcast team went down to the sidelines to report on how the players were adapting to the wetter playing surface.
The answer? CLEATS!
But, not the kind of cleats I had on my old school’s playground. Somehow, these cleats were even better.
It turned out that the teams had multiple sets of cleats of varying lengths for each player’s shoes. These cleats could be removed from the bottoms of the shoes and replaced with different ones to suit each player’s job and the conditions on the field. If the cleats were too short, they wouldn’t penetrate the field to the firmer, dryer ground below the surface, allowing the player to be taken down more easily by the opponent or cause that player to slip while making a quick change in speed or direction. Basically, longer cleats would give players better footing in these wetter conditions.
In a football game (the American version), you see linemen and blockers taking on the opponent in a sort of hand-to-hand combative style. Without the good footing that the right cleats provide, these players would find themselves knocked on their backsides on pretty much every play.
On other parts of the field, players are engaging opponents in a variety of different ways. Receivers are running routes that call for quick starts, stops, and changes in direction. Quarterbacks are moving around to avoid a pass rush and planting their feet to deliver passes. Ball carriers are stiff-arming, side-stepping, and performing any number of other moves to forge their path to the goal line. Defenders are reacting in an attempt to make sure that none of these fancy maneuvers work as they were intended. All of these actions require a proper set of cleats to make sure you stay upright instead of falling flat your face for the entertainment of those fans watching someone else’s highlight reel.
Your emergency fund works in much the same way for your money that cleats work for an athlete. One thing we can be certain of is that rainy days and muddy financial conditions will happen. In fact, I am writing this post during a time that could be a considered a full-blown rainy season for some of us. But, a well-prepared emergency fund for those rainy situations will give you the stability to take on those hard situations and the agility to make the moves you need to make instead of taking a financial fall.
How Does This Look in Everyday Life?
One of my friends from our church’s financial small group woke up one day last year to find that one of the trees in his back yard was “threatening to fall” on his house. But, thanks to his emergency fund, he was able to pay a tree removal service to remove the offending tree and restore the safety of his house’s structure.
Did my friend have to give up some financial ground to solve his problem? Sure.
Was his financial progress slowed down? Yes.
But, at the end of it all, he made his move, got his win, and went on with his life without being saddled with some new debt to knock him off-balance.
He had built up his emergency fund, so his money had the cleats required to keep his family’s money situation upright and moving forward. (And, he was excited enough about the event to share it with our group on social media.)
I could include more examples from my own life; I’m sure you could, too.
- Car repairs?
- Home Improvements?
- Medical Expenses?
- Temporary Loss of Income?
How did you handle those situations in your past? How would want to handle those situations in the future?
Do you want both of those answers to look more like a confident stride to your goals or a flailing flop in the mud?
Your emergency fund, properly cleated…ahem…funded, is here to help.
So, What Now?
Now that we’re thinking about an emergency fund in this more active way, how do we respond?
Set a Goal
First, make sure you have an idea of how much traction you want your savings to give you. The consensus financial advice is that you should have 3 to 6 months of current expenses in a savings account (I use Ally and Marcus savings accounts for mine.) I wouldn’t drop below that 3 month threshold on the short side, unless you’re paying off some high-interest debts*, but if you want use a different range (like 3 to 7 months, 4 to 8 months, or even 6 to 12 months) to fit your specific situation, I think that’s fine.
*If you’re paying off high-interest debt, maybe set a goal for a savings balance between $1000 and $2000 until your debts are paid. Then, go for your # of months goal.
Make a Plan
The next step is to set up your process for achieving that savings goal.
I am putting 10% of my after-tax income toward my emergency fund, and that seems to have me progressing nicely toward my goal. If you’re savings rate isn’t moving you toward the amounts you’ve set for yourself, look for ways to kick in for another percent or two. Or, commit any tax refund, bonus, or overtime money you might receive toward saving for these rainy days.
(Special Note: If you’ve lost your income for any reason, it’s obvious you won’t be able to chip in more savings to an emergency fund without selling some of your stuff. You will want to commit to saving 1-2% of each pay check when your income returns; do this immediately when that happens, even if that new income is not as much as at your previous job. Even if you end up withdrawing most of your newly added savings each month to try to get back to square 1 when you’re starting out, having the mindset of a saver can have positive effects in other areas of your finances.)
Work Your Plan and Don’t Get Discouraged
Lastly, put your plan into action and don’t get discouraged when life comes after you with an unexpected expense every now and again. Very few of us can magically come up with 3+ months of expenses overnight. Rest assured that you will see many a financial opponent while you’re in the building process.
But, with a good plan to build your level of savings, you will eventually be able to take on most of those economic opponents (stiff-arm, side-step, or spin move) without getting knocked on your backside or falling flat on your face. You may get slowed down, or even have to give up some ground here and there. But, you’ll still be standing tall and ready to run, leaving that latest obstacle behind you.
Here’s to good financial footing and financial agility.
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