If there is one thing we can count on, it’s chaos. Things break. Accidents happen.
Want to jump ahead?
- Earning, Spending and Looking Ahead
- Building an Emergency Fund
- Employer Matching Contributions
- Paying Down Expensive Debt
- Setting Big Goals
- Preparing to Retire
- Seize the Day!
Step Two in BodesWell’s 7 Steps to Financial Independence is to build a money cushion so that when the inevitable happens, you have reserves to fall back on.
Creating an emergency fund has another benefit – the process builds healthy habits for the rest of your life. If you have ever entered a running race, you could compare this step to your first 5k. It’s a big accomplishment, and it can lead to even greater things.
How big should your emergency fund be? Experts agree that you should have at least three months worth of expenses stashed away. Some people save more. You might want six, nine, even twelve months worth of expenses in reserve.
Where should you keep it? Keep it in a “liquid” bank account, meaning that you can withdraw it at any time with no penalty. The account should be in an insured institution, like an FDIC insured bank. If you can earn interest on your emergency savings, even 1%, so much the better.
How do you build it? Just like training for that first 5k race… a little at a time, slow and steady, gradually doing more until you look around and you have crossed the finish line!
Because this step is so important in your journey to financial independence, BodesWell has a special goal called (you won’t believe this) “Save an emergency fund”.
As you get set up in BodesWell, we will look at your expense levels and your connected accounts. If you have enough money saved already, well, you just completed Step 3. Keep that money aside so it’s there when you really need it. But if we detect that you don’t have at least three months worth of expenses in savings, we will walk you through this step.
BodesWell will check on your progress as you go and remind you of your goals. If life intervenes and reaching your goal takes longer, that’s fine – just keep at it. When you reach your savings goal, we’ll automatically check off Step 2 for you. Congratulations on a huge step forward!