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Why Your Emergency Fund Should Be (A Little) Hard to Reach

Apparently, 40% of Americans don’t have enough in savings to cover a $400 medical emergency. While I hope you’ve got more saved than that, that’s a great first goal if you’re looking to improve your finances. Most financial advisors recommend starting off with a $1,000 emergency fund, and then slowly building that up to cover 3–4 months’ worth of living expenses.

If you don’t have a place where you can set that money aside and know it’s safe, it’s easy for whatever you’ve saved to get sucked back into your everyday spending.

The best kind of emergency fund is one that’s easy to put money into, that’s available when you need it, and that’s just hard enough to get to that you don’t think of it in your day-to-day mental calculation of “what do I have available this month?”

And one great way to make your emergency fund just a little harder to get to is to put it somewhere “out of sight, out of mind”: think about creating a savings account that’s expressly for emergencies, at a bank you don’t normally go to or interact with.

  • If, like me, you’ve been thinking about creating an account at a local Credit Union to see what it’s like having an account there, an “emergency account” could be a great way to dip your toes in the Credit Union water. (I hear it’s nice.)
  • Or you can create a “money market account” with Vanguard, Fidelity, or whomever holds your retirement funds. (This would be separate from your retirement account, but — psychologically — you might be less likely to draw from it since it’s housed near your retirement funds.) If you don’t yet have a retirement account, and are kind of intimidated about that, creating a money market account at Vanguard (or wherever) is a great way to break the ice there. (We don’t post affiliate links here; this info at Vanguard on money market accounts is just for information in case the idea’s new to you.)
  • If you set up a new emergency account at a bank or credit union where you already have your main checking/savings account, try setting up an automatic transfer of a small amount each month from your main account, so you can slowly build it up over time. You can probably set it to transfer the day after your paychecks normally deposit, if they get deposited on a regular schedule.

One other thing you can do to help remind yourself to only put money into the emergency account: If your online bank allows you to rename your accounts, give your emergency savings account a name like “DO NOT TOUCH” or “BREAK IF EMERGENCY” or something similar. Or, to remind yourself of the amount you’re trying to save, put that amount in the title of the account itself: “EMERGENCY – 1K”. Then, if you’ve set aside $600 into that account and find you need to scrounge together some money for a small, non-emergency bill, you’ll be less likely to pull that money out.

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