Emergency savings

Things go off the track for all of us, from time to time. Someone crashes their car into yours; your company downsizes and they’re letting you go; a medical bill comes up; a pandemic strikes.

Most research shows that it takes an average of three months for people to get a new job. For some, it may take longer, but it’s a great place to start. If you have three months of emergency savings put aside, you’ll be in a much better position to weather the winter storm. And there is always a winter storm coming, even if you haven’t experienced your first one yet.

It is much healthier to contemplate inevitable future events —like old age, death, and accidents— than not thinking about them or not proactively planning to soften their impact.

It is best to open up a completely separate interest-bearing account for these savings; something you don’t see in your normal banking app, and until you have a bit more saved up, something you only touch in absolute emergencies. This money is separate and should not be invested in stocks or locked up in accounts with long notice periods that you can’t access in an emergency. (Suggested: 🇿🇦 : Money market account | 🇲🇽 : CetesDirecto | 🇺🇸/🇬🇧/🇪🇺 : a savings account that earns the highest interest)

Calculate your monthly spending

You can make a short list of your most-important monthly expenses; the things that you need to live a normal life. They might include:

Housing, rent (or home loan mortgage) and utilities

Food (excluding restaurants)

Medical insurance / medical aid

Transport: car loan repayments, fuel, repairs, and other transport costs

Debt: cards, house, car, personal, student and other loans

Basic entertainment

Basic personal expenses

Others: pets, children, dependents

For some people, it might add up to $1,000 a month and for others $10,000; there is no “right”. But, at minimum, you will need three times that amount saved up.

Note: If you’re feeling lazy, you can just triple your monthly after-tax salary, since most people spend their entire salary each month.

Not enough yet?

If you don’t have the equivalent of three months’ savings to put aside just yet, don’t worry. Just go and add a line to your personal balance sheet for your dedicated emergency account and add $10 to it. Keep building it up over the coming weeks and months. Consider selling old crap on Facebook Marketplace and cutting back on your future expenses to add to this over time. Don’t touch it, except in case of an emergency, defined as a health crisis or when you unexpectedly lose your income.

Every little bit here helps and it will be a buffer, not “if” but “when” things go south.

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