The One Account That’ll Save You from Financial Panic

Hi Reader

Welcome to The Money Series, and if you are new here, thank you for signing up. Personal Finance can feel ambiguous and overwhelming, but I am here to help simplify the journey.

Last month, I was working on my laptop and it just crashed - no warning, no signs - right in the middle of an important task. I remember sitting there, staring at a blank screen, realizing that fixing or replacing it was not included in my budget for that month. While I managed to sort it out, it reminded me how quickly an unexpected expense can throw off even the most carefully planned budget.

Life doesn’t always give us time to prepare. It might be a broken phone, a medical bill, or a sudden layoff and that’s exactly why having an emergency fund matters. That’s why today, we’re talking about setting up and maintaining an emergency fund.

How to determine the size of your emergency fund

The first step is knowing your financial baseline i.e. your total monthly recurring expenses. Experts generally recommend saving 3–6 months’ worth of your financial baseline. But this is not a one-size-fits-all rule. Depending on your situation, you might want to stretch it up to 12 months’ worth.

Consider having a higher-than-average emergency fund balance if:

• You work in an unstable job or industry or freelance with unpredictable income

• You have a health condition requiring regular out-of-pocket expenses

• You support several dependants

• You live in a high-cost-of-living country

You might get by with a smaller emergency fund if:

• You have strong financial support from family or community

• You hold a stable, secure job

• You have no dependants

How to Save for Your Emergency Fund

Let’s assume that you currently do not have a designated emergency fund and outline how you can build it over time. Below is a simple chart that shows how long (in months) it will take for you to build your emergency fund based on the proportion of your income that you save monthly.

If you save 10% of your income each month, it’ll take about 39 months to accumulate six months’ worth of your financial baseline. Save 50%, and you’ll hit that target in about 7 months. (These estimates assume your baseline expenses equal 60% of your income and a 5% annual return.)

Pro tips:

• Automate transfers to your emergency fund account as soon as your income hits your main account.

• Use windfalls wisely: direct bonuses, tax refunds, or gifts into your emergency fund.

• Declutter and convert: sell unused items and funnel the proceeds toward your goal.

Where to Keep Your Emergency Fund

Your emergency fund must be accessible, safe, and liquid.

Two great options:

• High-Yield Savings Accounts (HYSA)

• Money Market fund

These offer modest returns while ensuring quick access. Avoid tying up your emergency savings in stocks, crypto, or equity funds; they’re too volatile and may not be liquid when you need them.

Keep It Alive

Your emergency fund isn’t a “set it and forget it” situation. You’ll likely dip into it from time to time and that’s perfectly fine. The key is to replenish it as soon as possible afterward.

Also, review your fund periodically as your life evolves. Marriage, relocation, having children, or career changes can all shift your financial needs.

Think of your emergency fund as a raincoat — it won’t stop the storm, but it’ll keep you dry enough to keep moving.

Reflect on This:

• What unexpected expense in the past year derailed your financial goals and how would it have felt to handle it with ease?

Till next week, I am rooting for you, money-ly!

Dee

P.S: Forwarded this email? Sign up here! Know someone who could benefit from this newsletter? Forward it!

Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.