How to Fund an Emergency Fund

Hi there 🙂 I hope you all had a great thanksgiving with your loved ones! This thanksgiving was EXTRA special, it was my son’s first thanksgiving, and he tried green beans for the first time with his dinner!

Earlier this week I introduced you to emergency funds. We covered what they are, what accounts to use, and how to find them. I want to go into more detail on how to fund it now, so consider this the Emergency Fund Part II newsletter!

Unless you already have a huge pile of money sitting somewhere that you just need to transfer over, building an emergency fund from zero is something that will take a lot of time and discipline. But, its absolutely possible to build one by starting to contribute what you can today and slowly increasing those contributions as your financial situation changes.

There’s 3 ways you can choose to fund your account when you can’t fund it all at once, lets cover each one briefly!👇

First strategy is to setup automatic contributions from your paychecks for fixed dollar amounts. This is likely going to be the choice for most people, in fact, this is the strategy that I mainly use. To do this, create a separate account (preferably an HYSA) and setup recurring contributions from your paycheck into the separate account. If all you can do is $20 a paycheck right now, that’s great! It might not seem like much, but $20 a week can add up to $1,040 a year! As your financial situation changes, you can increase your contributions until you get to your desired balance.

Second, you can setup percentage based contributions. Similar to the first strategy, you create a separate account and setup recurring contributions from your paycheck into a separate account. The only difference from the last strategy is that this isn’t a fixed dollar amount, it’s based on a percentage. As your income increases, so will your contributions to the emergency fund since they are based on %. For example, say you contribute 5% of your income to your emergency fund during the year. If your income was $50k, you would end up contributing $2,500 to your emergency fund that year. However, if your income goes up to $75k next year, then that same 5% contribution will end up being $3,750. It’s an easy way to set this up once and automatically contribute more to your goals as your income increases.

To arrange for this with your job, reach out to your jobs payroll or HR department and let them know you would like to update your paycheck distributions. It all varies by employer, but my employer allows me to make distributions to up to 10 different accounts and I can use a fixed $ amount (#1) or a percentage based approach (#2).

Last, but not least, lump sum contributions. The two strategies I mentioned above are both slow and steady approaches meant to help budget a normal paycheck. This one, is meant to help give the account a boost and help you get it funded even quicker. Basically, any time you get a lump sum of cash you can make a big contribution to your emergency fund. For example, if you get a $5,000 bonus from work or you get a big tax refund. You can do anything you want with that money, a lot of the times I see people go on a big trip or buy a new car. What this strategy suggests, is to put a big chunk, or all of that works for you, towards a goal. You got a $5k bonus? Awesome, put 25% into saving and 25% into investing - you still have $2.5k to have fun with and you just made a dent in your financial goals. Obviously, you can contribute more but I think it’s important to find the balance of enjoying the here and now and being mindful of your future.

Want to earn some extra $$$ to help fund your account?

I will be making a newsletter specifically on side hustles this month, but for now let’s cover how there are ways you can make some extra $$ without having to do any real extra work. Specifically, new account bonuses. Everyone needs a checking account to get paid and be able to pay bills, but did you know banks will pay you to simply open an account with them? Generally, you will see some requirements to earn the bonus (like having a direct deposit, a certain number of deposits, etc.) but they are usually easily attainable and don’t cost anything.

My favorite, of course, is SoFi. I’ve been using these guys for over 3 years now and I don’t have any plans of leaving soon. They have 2 bonuses of up to $325, you can find more details for that here. Fifth Third bank and Wells Fargo both offer a $300 bonus to new customers who open a qualifying checking account, and complete qualifying activities, you can find more details for the Fifth Third bonus here. For the Wells Fargo bonus offer details, click here. Lastly, Capital One is offering a $250 bonus for new customer who open a qualified checking account and complete qualifying activities, you can find details here. I really love these bonus offers, it’s like i’m getting a bonus for spending 10 minutes to create an account and get paychecks from my job. Not bad right?

You now know what an emergency is and why having one is important. You now know that an HYSA is a great option for this account, and that a CD is not, how to find one, and what to look for. We just talked about ways you can fund your emergency fund, and how this will take time. Now go take action!

See you next week!

-Ney