Everything You Need to Know About Emergency Funds #021

heater a couple years ago. That's right, asking for the discount on the instant, but so getting an actual free water heater, yeah, man, free it's electric as well. As soon as I said that, like damn, I know, I knew you were gonna say that. Yeah, electric high efficiency water heater. It's like six months old. I got that jang for free. So a plumber I know that we've

we've used them before. Basically was ripping out redoing the plumbing on a on a renovation nearby and they were just told to get rid of this water heater, uh and not you know, basically all the plumbing and they were looking at it and they realized literally it was only six months old, and they just felt so bad getting rid of it. So he thought of who might would want who likes free stuff that I know? The

host of the Cheapo podcasts. Long story short, thought of me came by dropped it off in my driveway for me, and yeah, literally, yes, I know. He's literally. I wasn't even home and I got I came home and there's like basically a bran new water heater sitting there waiting on me for me to use, and one of our properties coming up here pretty soon. Dude, I love it. That's awesome. And guess what I'm gonna call when it comes time to hook up all the hook up all

the pipes that guy. Yeah, exactly, So dude, when when he's he's happy. Plus they do awesome work. So yeah, man, pretty sweet deal. Huh you're jealous? Uh? Yeah, so just putting this up to leave me? I know, you get plenty of deals that I don't get to partake in. So well, there any plumbers out there that want to give me any water heaters, I'm certainly open to it. I welcome free stuff on my on my doorstep. Yeah. Speaking of free stuff, we're going to our neighborhood beer fests. Yeah,

I'm so stoked, dude. It's pretty much the best weekend, one of the best weekends of the year. I'm so excited about it, and I think this is my seventh year doing it. Really Yeah, and you're an old man, I know. The great thing about our neighborhood beer fest is that we volunteer, right, and so every year you and I we pour beer for the patrons, the people that actually pay money to go to our neighborhood beer festival.

The best things are that we raise a ton of money for our neighborhood, right, for a neighborhood organization, which is then able to deploy it in ways to beautify the neighborhood. And exactly the beer fest falls under the nonprofit, and so the nonprofit supports local neighborhood organizations. And I'm pretty sure one of the recent emails they sent out said they've raised over a million dollars in the past

ten years. That's incredible, Yeah, which is huge for nonprofit, especially a nonprofit where the majority where the majority of their funds are coming from people drinking beer making the world a better place. Man. Yeah, and so, and the other beautiful thing is you and I get to drink beer for free all day, which is awesome because if you're pouring beer, you you still get to take a little on the side, take some take some SIPs. And so that's really fun to get to take some beers,

a good way to try a lot of new beers. Yeah, some someones that we've had before too. Yeah. So uh, if you guys follow us on tap, you might see that we blow it up at the beer fest uh this weekend. Oh and so Matt, I'm also really pumped because we ordered some coozies to distribute there. Oh yeah, with our logo on it. I'm really pumped to handles out and kind of let people know what we're what

we're doing here over poor not poor. You know, a lot of different neighborhoods have beer fest now as well. And so that's the other thing to consider volunteering your own local beer fest. Instead of forking out the money and coming over and seeing us, which would you know, that would be awesome, consider pouring and volunteering with your own local beer fest. Yeah. And the great thing is it's a blast, it's a fun day, it supports neighborhood and on top of that, you save some money to

drink beer. Speaking of drinking beer today on the show, we're drinking a beer by Avery Brewing Company out of Boulder, Colorado, a really, really, really good brewery. You already know Colorado makes awesome beers and Avery is one of the best producers even in the state. And today we're drinking a beer called Lily Koi Cupolo, and it's a Belgian style white ale brewed with spices and passion fruit. Man, that's pouring that nice kind of cloudy golden almost like a

little bit of ruby kind of color there to it. Yeah, and a nice nice ruby and orange. It's got kind of kind of a grapefruit look to it. Yeah. Yeah, it's got that fade. So I've had this before, like once or twice before. You love this beer. I love this beer. I am curious to taste it again because the last time I had it, I was like, I don't know about this. Guy comes in six packs and you can get this because Avery is distributed in most states now, I think, so you can probably find this

in your local package store. I love the passion fruit. It almost has kind of a smoothie issue kind of vibe to it with the with the passion fruit kind of blended up in there. It's tropical tart a juicy and delicious. You know, it does taste a little better than I remember it. It does have those tropical fruits. It kind of remind makes me think of like a little tropical fruit cup, you know, like, oh yeah as

a kid, you don't you're not talking about most totally. Yeah, you feel that, Yeah, like one of the like the dull pineapples cup things. Yeah, a little sugar. I mean certainly this isn't crazy sweet like that, but it's got like the token cherry, like just like that one cherry that you're allowed to have in it. Yeah, it kind of tastes like sliced pineapples that you kind of get as well. Yeah, it's totally get The pineapple got a lot of throwback flavors from my childhood. I love the

can too. It's a cool color blue with a ticky man on the front. This is a great summer beer because, yeah, it's light, it's refreshing, it's easy to find. What's the add on this? Five point four easy? Yeah, you can drink a couple. I totally recommend the Avery Brewing Company. Little Quoi Cupolo dang tasty. What's up with the tiki man? I feel like tiky bars and sort of tiki theme is making a comeback. Heck, yeah, you think you've noticed

that loved me a good tiki bar man. I think in general, themed restaurants might kind of make a comeback from Is that like the seventies or the eighties where there's like the themed restaurants. Yes, and I hope they do Beame restaurants are so fun. I was like right after Alley, Yeah, did you go to Medieval Times as a kid or like in middle school? My parents totally took me in the Medieval Times and oh, in the Dixie stamp Dixie and like near Dollywood in Tennessee, the

Ryanstone cowboy jumpsuits, riding around on the horses. I distinctly remember chasing chickens on on the dirt floor in front of a giant crowd with my sisters. Yeah, when we were young at the Dixie Stampede. So what you're saying, that makes me picture your children chasing out And like when you said that, immediately pictured your girls, not you as a child, and we're so awkward, and my girls included and and so I would imagine they would fall

faced ch almost immediately. So yeah, it was fun. All right, Matt topic, we're tackling today everything you need to know about emergency funds. Yes, emergency funds. This is something we talked about briefly when we did the Budgets episode forever ago now, um, but we decided it's time to do an entire episode on emergency funds because they're just so clutch. They don't get nearly the the attention I think that they need and that they deserve. And so that's why

we're gonna spend an entire episode. We're gonna talk about how to get started on your own if you don't currently have one, and uh yeah, hopefully by the end of this, if you don't already have an emergency fund, you you'll be well on your way to getting yours set up and running. Yeah. And first, really, there's a huge problem in the United States. Stats bear out that the majority of Americans couldn't get their hands on three thousand dollars cash if they had a big car repair

that they need to put money towards. And a lot of Americans also couldn't even come up with five dollars cash in the case of a minor emergency. And we live in the one of the richest countries in the world, and those facts are kind of startling when it comes down to it that most people are completely unprepared for

an emergency. And that's a huge part of the reason that that this episode and what we're gonna talk about here with emergency funds is crucial, yeah, man, And I mean the problem is then, is if you don't have an emergency fund set up and you you face an emergency, well you're probably gonna have to put that expense on a credit card, and that obviously leads to a downward cycle because then you're making payments on that and then all of a sudden, something that may have only cost

seven fifty bucks and like car repair costs, is now costing you, you know, a thousand bucks twelve hundred bucks over over time. Yeah, And in large swass of America, that's what tidle loan places do and payday lenders. They take advantage of people that are in emergency situations and don't have access to any amount of cash really to get out of it and can't wait till pay day. And so there are a lot of people living their lives on the margins. And it's not just people living

in poverty. But there are a huge portion of Americans making good money, right. And there was a New York Times article that you and I both read, oh yeah, about a successful dude who had published books and was still author living paycheck to paycheck and could not seem to get ahead financially. And just because you have a big income, if you're spending just as much or more than you make, you're still living paycheck to paycheck. Yeah,

you just live from bigger paycheck to bigger paycheck. So this is a problem across all income levels in America. We spend more than we make, and our emergency funds are nil, and it leads not only to financial hardship, but then emotional and marital and relational stress in our lives. Stresses you out, man. Obviously we're talking about this from a financial angle, right. We don't have enough margin. We

don't have enough cushion in our life. Not only that, though, I feel like we just don't have enough margin in our lives when it comes to time, and like the amount of time that we have for other people and those around us in need, just situations where it might take us out of our usual you know, get up, go to work, make money, come home or spend money on the way home, and then go to sleep and you know, nse and repeat. That might be a topic for another episode, but yeah, I don't know. That's just

something I wanted to mention. But hopefully while we're discussing the financial aspects of having an emergency fund and what that does to your life, think about two where your time goes? And oh yeah, can you build essentially reservoirs of time that as opposed to go go go busy,

busy busy. Uh? Creating those reservoirs of time is crucial And yeah, this podcast, right, we're all about saving money, but we're also about living mindfully and I think it's just a really important thing to discuss, and not many people are discussing that, Like, yeah, it goes hand in hand, right, Yeah, we prop up business and uh and getting stuff done and you know, I'm all about working hard, but there's a downside too, the way our culture treats work and

the idea of business in general. Yeah, so obviously that mean what we're gonna talk about is the emergency fund. So Joel, do you have an emergency fund? I sure do. Man. Do you remember always having an emergency fund. I remember always prioritizing savings, right, so always building the savings up, and I didn't always call it an emergency fund, you know, when I was in my early twenties, but I was

always building my savings level. So I was always prioritizing putting money in my savings account every month and watching it grow. I just wasn't calling it an emergency fund at that point in time. Yeah, that was kind of my approach. Honestly. That's basically what I did up until I became like a Dave Ramsey junkie. When I was like in my early in my early years, like shooting them into your veins, what are you doing? Basically, that's

weird man. Early on, you know I was, I was pretty hardcore, and that's when I was like, no, it's called an emergency fund. This is what we're calling it, and it's got to be you know, this exact length, it must be this exact dollar amounts, and you know other rules associated with sort of his approach to things. And you've kind of calmed down on that a little

bit now. And and I think that's why this is interesting too, because I think there are some hardcore personal finance people that would be like, this is what you need to have and and I think there's some good rules of thumb in what they're saying, but I think there's also a lot of caveats that will that will hitting this episode as well. Yeah, there's a lot of room for flexibility, and a lot of it depends on

the individual. It depends on sort of their life stage, where they are in life, and overall how sort of financially prepared they are for financial events in their life. So quick tip to people that don't have one at all right now, and they do find themselves in that boat that man, if my transmission went out tomorrow or if I lost my job next week, I have no

idea where I'm gonna get money. I'm gonna be using high interest rate debt right I'm gonna be going to the payday lender or using my credit card, tapping my credit card right. Really, for people like that, their first goal, the necessity right now is to start saving little by little and accruing an emergency fund of five two thousand dollars.

That's a goal that's that's feasible, that's reachable if you have income, and and that's Ultimately, the first goal that needs to be set reaching a level like that where at least you could meet some sort of financial distress without having to tap into some sort of high interest rate revolving debt. That's a really good first goal to have in mind. Yeah, if you don't hear anything else,

just go do that. Like if you gotta cut the episode off, now, go ahead and just make sure you write that down and yeah, wait, I have lots more to say, and well, yeah, we'll say there's a lot more to cover because it varies, but but yeah, that's that's the first thing. So most definitely, so juel first off, So essentially what is an emergency fund? So an emergency fund is essentially the savings account that's separate money only

used for major financial emergencies. And typically the amount that you would want stored in an emergency fund would be three to six months of your core expenses. And ultimately what that means is, let's say you did lose your job. You could pay the mortgage, you can put food on the table, you could keep the lights on four three to six months while you're looking for work. Yeah, so it's important to point out there though, is that that's like the emergency, right. So what the emergency was in

that situation wasn't paying for groceries. It was the job loss right to cover the regular expenses. And some other situations where it might call for the emergency fund, right, say you've got to hide it higher deductible on your car insurance, which we would recommend to keep your monthly expenses down because it's not likely that you're going to

get in an accident. But if you do and you have a higher deductible, say a thousand bucks is totally reasonable to have, you're gonna need to find a thousand bucks to put towards your vehicle if you you know, if it's totaled. Yeah, and you'll save big money every year by having a higher deductible in your homeowners insurance and hopefully you know, the goal is never to have

to use it. But if a tree falls on the corner of your house, causes major damage and you know, goes through the bathroom and you gotta have you gotta have a new roof put on in a whole new bathroom, uh installed, then five thousand dollar deductible is that's a lot of money, man, That's an emergency right there, right, And so an emergency fund is great for something like that, whether it's a small fix that you that you can do yourself without insurance, or whether it's just a high

deductible that you have to meet. Having that emergency fund for situations like that, of these extenuating circumstances that you know can happen but are unlikely and you're hoping and praying don't happen. I mean, that's exactly what emergency fund is for the things that you want to stay away from. The what an emergency fund is not for. It's not for putting new tires on your car, it's not for routine bills, it's it's not for paying for groceries when

you currently are employed. Right, So the emergency fund, you want to kind of keep that separate and you don't want to use it for some of these things that you really should be budgeting for. It's for that unexpected really, yeah,

all those things you should be budgeting for. There's things even if it happens not even just once a year, but say once every few years, there are certain expenses that you just need to be looking ahead to and planning not only every year, how much to set aside for but literally every month to break that down and to know how much you need to set aside. I mean, that's that's what it takes. That's what it takes planning

that way. When the bill comes due, you're prepared and it's not an emergency at that point because it's something that you can plan on, all right, And so by the very definition of emergency, it's an urgent need, right, And so emergency funds do need to be accessible and

fairly liquid. So if that's the case, Matt, that means that your emergency fund and we'll get into some caveats later, but then it should probably be in a savings account earning a decent rate of interest, and preferably even a savings account that is separate from the one that you normally use. Yeah, Man, So for us, we actually have our emergency funds set aside in our savings account. So currently we have most of our money in ally bank, where we have our sort of day to day expenses.

Monthly expenses come out of our checking account, but then our actual emergency fund chunk is sitting there and the savings account because that's where we're earning the high interest rate and hopefully your emergency fund is going to be a decent chunk, and so you do want to find a high interest rate of savings, that's the best place

to store it. Uh. You definitely don't want to put an emergency fund in a four oh one k, right, because then you're you're subject to the womens of the stock market, and it's not liquid cash you want to have in a bank account. And by the way, I recently opened a new account with a bank called c I T and they pay a lot more than what my bank Capital one was paying, and so I went from one percent to one point seven. Uh. And so yeah, for a large chunk of change, right, earning a little

bit more every month is where it's at. And there's an article on on the website just kind of comparing and talking about my experience switching, if you want to check that out. So that being said too, if you're just more of a nerd, it's not necessary that you have your emergency fund in a completely separate account. If you're able to create a floor, you know, or like a blind that you never kind of dip down into.

I mean, that's your emergency fund. It doesn't necessarily have to be a completely separate thing, because a lot of times it just gets complicated. And so and that's the last thing we want is for your listeners to not do this because you're like, I don't want to have to open up another account. I'm just happy with whoever I have. Yeah, and I completely you know what I'm saying. Yeah, that's kind of how I approach it. I can keep

everything in the same fund. I think it's important probably for a lot of people to have a second fund just it helps mentally, but more barriers and sort of walls. Yeah, yeah, and then you know, it's like kind of untouchable or whatever. But for people that you know, do have like their financial act together, uh, creating a separate account certainly isn't necessary. And just knowing that there's a floor that you don't go beneath is like a really helpful way of doing it. Cool,

So that's the first thing. Consider opening a separate account, or if you know that you're an ultra nerd, create that blind start sacking that money away that you know you're not going to touch. Yeah. The next thing to do is, let's say you don't have one or you're kind of a nube, right, at at starting this emergency fund. Well, first, know that anybody can do it, and then we'll kind of give you a couple of tips to get started.

My favorite way to actually big time jump start electrify your emergency fund is to use a tax refund to do that. And so a lot of people probably just recently got their tax refunds. We talked about in an earlier episode what to do with a tax refund, and that was one of the things we mentioned. Using that refund to jump start your emergency savings is an awesome

way to handle that money. So if you have your still lingering around, you haven't blown it all on you know, fancy craft beer or a trip to Fiji, consider putting some of that money aside into an emergency fund, save for the future, safe for a rainy day, create some of that margin in your life and reduce some of that stress that comes along with the stress and headaches that come along with not having an emergency fund set up. Yeah, I see no better way to spend that tax refund

than to relieve stress. You know, what better way than just to simplify things and to just take stuff off of your mind that you don't have to worry about nearly as much. Yeah, I mean, if you've got your financial act together, an infusion of cash like a tax refund can be used for a lot of great things. But if you don't, in your emergency funds starved right now, that's the perfect place to put that chunk of money.

And another thing to consider, consider selling some things, maybe have in the eBay a night at your house and list a bunch of stuff that you don't need anymore and that you think is valuable to others. Maybe a yard sale on a Saturday in your neighborhood, or a side gig for just a few months. Whatever it takes really to kind of bolster that and give you a little bit of a financial cushion. It's worth it to do a little bit of extra work in order to

kind of create that margin in your life. You know, living life where you have no idea what you would do if an emergency popped up tomorrow. That's just a hard way to live. And so those are just a few ideas to kind of help you maybe get started and prepare yourself for that potential emergency. Yeah. So the reason is good to sort of jump start it, right,

is that it's just hard work. You can take a long time to get even that five thousand dollars set up set aside, but even longer, Man, if you're looking at three to six months worth of living expenses, that really can take a long time. So it's especially helpful if you can, like you said, get that sort of infusion. Uh, tax refunds great for that. It's not free money, but

it kind of feels like free money. And if you can just take that and apply apply that towards your emergency fund anyway to sort of jump start that and get the ball rolling to where you can kind of pile on top of that. Because even if you're setting aside a hundred dollars a week, I mean you're looking at a little over bucks for the year. For some folks, that's only a month or two worth of living expenses. You know, like that's doesn't get you very far, and

a hundred dollars a week is really tough. So yeah, I been able to kind of jump started like that, it's gonna be huge. Yeah, I mean I think sometimes hearing the financial experts say you need six months of an emergency fund, for most folks, they they hear that. I think they tune out just because that's that seems like an insurmountable goal. It's a huge amount of money

for a lot of it, it's a tough thing. Like for dudes like us that have our financial act together, six months just feels like, right, this big daunting thing, like how long would it take us, you know, from scratch right now to save up six months of our income? And and I think a lot of people tune that out.

And so that's why I want to encourage people just to start small, you know, take a step in the right direction, start saving five dollars a week, whatever it takes, Like figure out how you can do that, what you can cut out of your life, make sure that if you've spent the one for this year, that you save

next year's tax refund. Whatever it takes. You want to start somewhere, because if you just here that six month mark and you say screw that, that's not possible for me, and you decide to scrap the emergency fund altogether, well, ultimately in the end, that's just gonna cause you more stress every month. And when the emergency does come along, dude, that's gonna be really hard to stomach. And it's gonna

hurt you even more in the long run. Yeah, man, So let's talk about then, how much to set aside? All right, we talked about the three to six months. That's sort of a general guideline that we hear a lot. I think the biggest thing that people need to do is consider their life stage. Somebody that's straight out of college, that doesn't have a lot of responsibilities, that doesn't have a lot of say assets or things that they need to keep up with, chances are they don't need quite

as much money set aside. Yeah, and let's say they can move home with mom and dad at a moment's notice if something happens, right, they kind of have a fallback plane. Yeah exactly. Something like that means, you know what, you can point your money a little more towards your fur owing k or investing than straight up just saving for a rainy day. And while that's still important to do, just because of that specific life stage, you can afford for that to be less of a priority. Yeah, there's

just less pressure on you. Right, Like, you don't and if you don't have kids, you don't have a spouse, if you don't have a home where where there's things that you need to fix or a place. There's just less pressure on you financially. And you look at that on the other side of the coin, say you're like us. You know, we've we've got houses, we've got a family, we've got kids, we've got vehicles. There's a lot that

can break. There's a lot that can you know, go wrong, and things that might need to be repaired, like your car or a kid's arm exactly, both can break. Both of those things will cost money. Uh, when you're spread out like that, it's helpful to have I think maybe more set aside. Essentially, the more responsibility you have, I think you might need to look at maybe considering being closer to that six month worth of expenses set aside.

That's still a lot of money. And you also want to consider how much of us like safety net you want to sort of create for yourself, because essentially that's what this is. You're you're sort of setting this thing up in case something were to happen. Ye. I think another important consideration is are you a dual income household or a single income household? So if you are the only worker in your home, there is definitely a higher

necessity for having an emergency fund. If you're a two income household and one of you loses your job and you and still pay the basic necessities on that one income, curting an emergency fund is still a really good idea, but not nearly as as much of a necessity. And so another option to consider too is once you essentially have like a portfolio built up, and specifically you've been contributing to a roth ira, a that's something you can

draw on. You can withdraw contributions to your roth ira without penalty, without paying tax, and that's something that you can sort of draw on, like you can of tap that in case there's emergencies. So I wouldn't use that completely and solely as like your emergency fund, but to be able to know that that's sort of there as

a backup provide some peace of mind as well. I agree, if you've been investing in a roth ira up to the limit for the last eight, ten, twelve years, and you've built up a sizeable amountain there, I think it's okay to carry a much smaller emergency fund of let's say one month's expenses, because let's say the one month's

gonna lean. It is lean, but but let's say you know something does happen at job loss or you know which is probably you know one of them as difficult things that can happen or are a huge medical issue. If you have six figures in a roth ira A, you of course can still only withdraw the money that

you've contributed over the years. But if you've been maxing that out over a decade, that's over fifty dollars that you have access to that you can pull out tax and penalty free, and that essentially works as a really nice emergency fund, and so you can have less of your money sitting there in a savings account, earning less than two percent and hopefully working for you for the long run, especially if you're in a two income household

and you have substantial investments built up in something like a wrath where it is partially liquid. In that way, I think it's completely reasonable to have only one month of emergency fund in an actual savings account and put

most of your money there. And so I don't know what percentage of our listeners are in a position like that, but I think that's something to strive for as well, that over time, as your investments built up, as you're maxing out a wrath and contributing to your retirement in that way that you know what, you don't necessary really have to when you're forty five, fifty years old and you get this substantial amount and builds up, but you still have to have six months of your expenses in

a savings account. Yeah, that's worth considering, man. My biggest concern with that is pulling, like the potential of pulling that money out if you need it. Obviously, yes, during only during an emergency, but if you pull that out during a downturn in the market, you're losing money essentially at that point because you're pulling money out of the market that instead, if you know where you to leave

in would turn around and continue growing down the road. Yeah, And that's why I think the roth Ira strategy is really important to consider only if you are financially stable, only if you have your financial ducks in a row.

If you have been investing in a roth ira up to the you know, up to or close to the max for at least a decade, to where you've really built up a substantial amount of savings in there where you would only need to tap a small portion of it and then Also it's best suited for people that probably live in a dual income household where let's say they were to lose one income, they wouldn't need to

tap the emergency fund right away. So it's this good strategy, it's this good reserve to have and to know that's there so that you can have more of your money working for you as opposed to just in traditional savings that isn't earning all that much right now, but you certainly don't want to put all your eggs in that basket and making sure that it's almost like a secondary emergency, right So, so if you are a dual income family, will you lose one job, it has to almost be

another emergency on top of that that forces you to tap into that. So that that's where I think the roth IRA can come in and you can actually, hopefully over the long term, earn more on your emergency fund

in a RATH. And again that's not an exclusion to a savings account with an emergency fund in it, but I think at that point, if you've been doing it over the long term, you can really consider having a smaller amount in a savings account, probably more like one to two months of expenses in a savings account as opposed to that traditional three to six number that the personal finance people throw around. So I'll mission to that.

Having invested in I guess for that ten year, you're also investing at ups and downs in the market, so essentially you get a kind of dollar cost average over that entire period. So you're not only going in at the bottom or only going into the top. It's not a huge deal because you're you're averaging out all of

your investment purchases. And that's something you want to see as well, because yeah, if you were just going all at once, if if you're even able to with with you know, with your wrath, it could be more detrimental where you to pull it all out at a single point in time. Yeah, I agree, And to say one more time, it is an emergency fund, right, so your goal is to never tap it, and if you are in a strong financial position, a wrath can be a great kind of side plans that you don't have to

have quite as much in just traditional savings. But ultimately your goal is to never ever ever tap that money and just let it grow tax free for retirement. It's this emergency fund that you hope you never have to use and you desperately try to never tap a man. So those are a lot of the steps on like what to do right, so how to basically create your

emergency fund. A question that kind of comes up often is when do I fully fund that emergency fund, Like when do I start really setting aside the money and rereading that chunk of money. Specifically, do I do that before I pay off debt? And the answer to that, I think comes down to what kind of debt it is. And so if you're looking at something that is a higher interest rate, like specifically credit cards, or you know something maybe worse like a paid a loan or something

like that, you wants to pay that off first. So let's say you've got ten thousand dollars in your savings account and you've got a credit card at a interest rate. Well, I don't want to deplete my emergency fund. But here's the thing. You put that ten thousand dollars to paying off your interest rate debt. Well, if a two thousand dollar emergency comes along, well it sucks, but you use the credit card that you already had money on, right like that you already had a balance on it's just

too smaller balance at that point. So while you never want to have to put money on a credit card in case of an emergency, it only makes sense that you would eliminate debt that's at an incredibly high rate of interest before you really start putting money away in your emergency fund. And keep in mind too, that we were talking about high interest rate products here. We're not talking about your mortgage that has a nice thirty year fixed rates, and we're not talking about low interest rate

car loans. Hopefully you don't have a car loan, but if you already do, that's not that's not what we're talking about. If you've got something that's in the single digits, something that's close to five or six percent, that's not terrible. And so you definitely want to pay off balances that have rates above that. But otherwise, the emergency fund, that's your priority. That's what you want to focus on building up.

At the very least, like we said earlier, that five hundred to a thousand bucks, but ultimately you want to consider more than that. You know, you want to consider one to three. If you like to be a little more conservative, like we're even six months, that might be the point I would you feel comfortable. And if that's the case, then that's fine, that's great. You're gonna be well prepared for for any potential financial hardships that come along.

Just because you heard us say six months doesn't mean that you shouldn't start at all because it seems like too big, too lofty of a goal. That's why we're kind of trying to show you these tears that exist, and you don't have to do it all at once, you don't have to do it all with any a year's time, but attempt first to get the five and then the thousand and then the one month of your expense is Just because you can't get to six months in a short period of time doesn't mean you shouldn't

start at all. Yeah, this isn't something that's gonna happen overnight, you know. This is something that might take a year or even two years to kind of get to the point at which you feel comfortable. And again, this is personal finance, so this varies from personal person to varies from family to family. It's something that you might need to talk about with your spouse or your significant other. It's gonna vary, and it's just it's up to you

to decide at what point you feel comfortable. But ultimately the major goal is to create some margin in your life. There are so many people living on the edge with no access to almost any emergency fund at all, and the slightest hardship comes along and they don't know what to do, And so an emergency fund is really important for dealing with those emergencies that pop up, but even more than that, for eliminating stress in your life. Having a little bit of cash in the bank that's sitting

there and that you know can help you should something arise. Man, that provides a lot of peace of mind. And peace of mind isn't really something that money can buy. But in this regard when it comes to emergency funds, boy, having that small chunk at least that base really can alleviate a lot of that financial stress that the majority of Americans feel. Okay, Man, beer time, I do like this better than the first time I had it, It's

still not like my favorite. I think, if I'm going to have a Belgian like this, I either want it kind of nice and white, just real clean and fresh without the the sort of the fruit flavor's attitude or like the curio like we had last week. If it's barrel aged, where it adds like a layer of richness and complexity to it, I think I'm more into that. I was hoping I could convert you today to loving this beer as much as I do. But you know what, it wasn't in the cards. Yeah, I mean, I'm not

knocking this at all. I do like this beer. I will drink this one percent at the beach. You know. It's it's that kind of beer, just not my kind of like my every day go to I feel you well. Lilliquois Cupolo from Avery Brewing Company. Apparently there are mixed reviews on Poor Poor All right, man, let's wrap this up. Let's do a quick recap. The biggest reason why an emergency fund is necessary is because we have very little

financial margin in our lives. Most people live paycheck to paycheck, and when that's the case, literally, once that paycheck stops, you have an entire month of expenses coming up that you are not prepared for. Yeah, so you might need to start small. Saving up just five hundred or a thousand dollars in the beginning can really help alleviate some of that pressure. Don't let that three to six month figure throw you and keep you from starting an emergency

fund at all. Even though that's a good goal to have over the long term, know that it takes time. Yeah, It's important to keep in mind is that this is a personal decision, right, It's going to vary from person to person, and it just depends on what dollar amount you feel comfortable having in the bank sitting there ready to go where there to be an emergency. Yeah, So the biggest thing is to make sure that you don't

have it with one of the big banks. We're talking specifically about Wells Fargo, Bank of America, Chase, the guys that don't pay anything. That's not where you want your emergency fund. Hopefully, it's a big chunk of money that you're setting aside over time, and you want it actually to be earning something for you. And at the big banks it's point zero one percent interest insane, which is

pennies every month. Yeah, the banks that we use currently we're earning close to two percent, you know these days, which is awesome. All right, Matt. That's it for emergency funds. Our home on the web is how to Money dot Com. As always will have show notes up there for you for this episode. Cheers, Buddy, yeah Man, best Friends out, best Friends Out, m