While I will never argue with the importance of an emergency fund – preferably a decently sized one – I also find my non-monetary emergency fund to be huge in terms of my peace of mind when it comes to finances. This sort of “fund” will look different for everyone, but in some ways I think it might be even more important than a bigger dollar amount in an emergency fund. Let me explain.
When to comes to cash reserves, things are pretty black and white for a dollar amount that should be saved. There are arguments for a starting $1,000, three to six months of expenses, and sometimes even more depending on your individual situation. Regardless, those numbers come from taking your monthly expenses and multiplying them by the X number of months you want saved.
So, for example, if your expenses are $4,000 a month, a three month emergency fund would be $12,000 and a six month one would be $24,000. And to be honest, those numbers feel pretty big and overwhelming when you’re just starting out and trying to maybe pay off debt or max out the $6,000 a year IRA limit at the same time (something I did for the very first time just last year).
Clearly, though, having a solid cash reserve is really important in case of job loss or some other extenuating circumstance that takes you (unpaid) away from work for some amount of time. Unemployment or short term disability insurance can be a bridge in some situations, but not all.
When we were young and first out of college and I was working two jobs to make ends meet and pay my student loan minimums, I also knew that we had the ultimate privileged backstop of knowing we could ask our families for money if it ever came to that. I was determined never to need to – and we never did – but just knowing that safety net was there was huge to lighten my mental load, and I’d be remiss not to mention that here.
So beyond saving up every free dollar and slowly building up that cash emergency fund, what can you do to make your financial situation more resilient? Beyond just more dollars, there are definitely other things you can do to weather those expensive storms. Here are a few things we have in place.
The Backup Side Hustle (Even An Inactive One)
When our financial situation was a lot tighter than it is now, I pretty much always had a side hustle. While it feels like this shouldn’t have to be advice in order to make ends meet – a full time job should be able to do that – having a side hustle can be a big protection against a future financial emergency.
I worked as a park ranger in the evenings and on weekends for more than six years, and while that money did help pay off my student loans a bit faster, I turned down as many shifts as I said yes to because we would have other things going on sometimes. That said, I knew that if I needed to ramp up those hours at any time because of a financial need, there were good odds I could make quite a bit more money there in a pinch.
Now that I don’t have the park ranger job any more, we don’t have “regular” money coming in outside of our day jobs other than the very small amount that I make from this blog. While clearly monetization hasn’t been a priority for me here, there is some comfort in knowing that I feel capable of making money online now if I needed it (freelancing and writing articles for others in particular). And my husband has the handyman skills to be able to pick up one off jobs if we really needed extra money. Of course, all of what I just listed require time and mental/physical ability to earn more money – they certainly aren’t passive.
Bare Bones Budgeting – Fixed Expenses
Beyond the ability to make money – which isn’t 100% up to us because of life situations that could happen one day – it’s important for me to keep our fixed monthly expenses as low as possible. Ultimately, the only things we *have* to pay for each month is our (smaller) mortgage, food, gas/bus, pet food/meds, and insurance. Pretty much everything else is negotiable.
If push came to shove, we could cut out a lot of our expenses quite a lot, namely food and travel above all else. While it wouldn’t be fun to live that for very long, we could do it, which relieves a lot of stress. When your base life doesn’t cost very much, you simply have more options.
Clearly, we are very privileged to have high enough incomes, albeit moderate for our area, to have enough wiggle room at the end of the month to spend as much as we regularly do. We’ve worked hard to stay away from debt and pay off what we had (student loans), but we are still very, very lucky to be in a place to be frugal by choice and by backup and not necessity.
And then beyond our low fixed expenses are the ways that our emergency preparedness sets us up for emergencies – including financial ones. We make sure to always have a decent store of food on hand – our area has updated the recommendation to three weeks because in the event of The Big One (earthquake), things could be messed up in a big way for weeks or even months.
But even without a major disaster, the ability to shop our pantry means we could extend our financial reserves farther by simply being creative and eating what we have on hand. In the summer months especially, and even year round to a degree, the garden stretches this food even farther. While clearly having supplies on hand doesn’t pay the mortgage, it keeps us fed, one less thing that we would need to worry about in a financial crunch.
The Cash Emergency Fund
And finally, because cash really is king to some degree, we do have a separate emergency fund in a high interest savings account. We’ve kept this number on the lower end of three months or so of living expenses, all the reasons I’ve shared above are why we’ve felt comfortable deploying our excess cash to investments instead.
Ultimately, it’s our high savings rate that allows us to cash flow most unexpected expenses and the ability to live off of just one income that means our need for additional cash on hand is pretty low. Even so, the more money and cash flow we do have, the more I’ve been looking to increase our cash cushion.
The non-monetary parts of our emergency fund help me relax to a degree, but knowing we have a bigger easily accessible financial buffer makes me relax even more. I won’t sacrifice our other financial goals in order to beef it up more, but I’m going to be adding to it slowly for a good time yet. Six months expenses? A full year? Only time will tell for where I feel fully secure on that end. But the other pieces of our backup plan make me feel more secure along the way.
How much do you keep in a cash emergency fund? Have you ever considered what your non-monetary fund looks like?