4 Steps for Building an Emergency Fund and Pissing off Your Parents
Having an emergency fund is one of the most important things you can do to get your financial house in order. It’s one of adulthood’s basic milestones, like moving to your first off-campus apartment or like graduating from college and moving back in with your parents.
Experts suggest having between three and six months worth of living expenses in an emergency fund. Your parents suggest listening to experts.
Here are 4 basic steps to get started on building your emergency fund:
1. Start tracking what you make and spend
The only way to know how much you will need to save for your emergency fund is to figure out how much money you are making and what your expenses are. Note that while the money your parents give you each month does count as income, money they spend on stuff for you (see iPhone bill or magic Chevron card) does not count as your expenses.
Your parents will however need to factor those expenses into their own emergency fund, so be a good son or daughter and remind them to do that.
There are a lot of templates and forms for budget tracking, but there is only one way to do the math: (income) minus (expenses).
Also, we’ve created a simple budget tracking template. You can check it out here.
2. Decide what you can live without (I’m looking at you Comcast)
Once you’ve figured out how much you are making and how much you are spending, it’s time to decide what you can live without. If you go to Starbucks for breakfast every day, you may want to consider cutting back and using the money saved for your emergency fund.
If you have a cable subscription, well you should be ashamed of yourself. At this point there are actually too many cable alternatives: Netflix, YouTube, Amazon Prime, Hulu, HBO NOW and Sling TV to name a few. You could literally subscribe to all of them and it would still be cheaper than a cable subscription.
Maybe you can tell your parents to send you the money they are paying every month for your cell phone so you can pay it yourself and then just switch to a cheaper plan. The point is it doesn’t really matter what you decide to cut, the key is making the choice to scale back spending in favor of building your emergency fund.
3. Make the robots do the work for you – set up automatic transfers
Humans make mistakes. Humans forget. Humans get drunk and impulse-spend their whole paycheck on scrapbook supplies from Etsy. And parents usually forgive. But robots are perfect and they were built to serve (love) humans.
Setting up automatic transfers will make all the difference in building your emergency fund. The great thing about automatic transfers is that – you guessed it – they are automatic. The money goes from your checking account into your emergency fund, through a magic robot process, without you having to think about it. And there is no chance you forget to do it, because robots always remember.
There are also many smart phone apps and other technology solutions that are trying to help you automate your financial goals. Here are a few options that might be helpful: digit.co, betterment.com, acorns.com.
4. Earn more money
You’d be surprised how many ways there are to earn a little extra cash that can go a long way towards meeting your emergency fund goal. Maybe you sell your old stuff online (beanie babies you made your parents spend a small fortune on). Maybe you can start a dog walking side business (for those of us with liberal arts degrees you may want to re-categorize from side business to front and center business). Or maybe you rent out your parents house on Airbnb while they are out of town.
It doesn’t really matter what you chose as long as you long as the proceeds go towards the emergency fund…and your parents don’t find out.
