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.
PrepperFI
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?
Great post! I’m enjoying your approach & information!
Thank you so much!
My emergency fund is my HELOC. I don’t have a mortgage but have 200k line of credit of which i only need $150k. I pay down as much as i can every month and pull out what i need to cover expenses (interest payment is only on the average amount borrowed for the month). Knowing I have 50k that i can get to with a click of a button at any time (in case of emergency) gives me great peace of mind.
I can definitely see that reason for a HELOC.
Mr. Money Mustache recommend this form of emergency fund. I haven’t tried it and instead keep a lot of cash in the bank in the event of an emergency, but I have significantly reduced that number. Like Angela, I know that in the worst case scenario I can ask family for help, but it’s not my first step. I’d much rather deal with the emergency on my own than burden anyone.
But I love this idea of looking at an emergency fund more comprehensively. Angela’s right that having cash on hand is only one part of the solution to a potential problem. Having a few ways to tackle the problem lessens its severity.
Love this angle, Angela. We’ve not once had to use our emergency fund, so it’s benefits have primarily been psychological. We worry less, for sure, and are more willing to take risks in the other parts of our lives, which have benefits with our finances and beyond.
It is SO hard to use any money earmarked for an emergency fund – or even savings. But the upfront flexibility of using other sources first makes it even better.
i would say we could live an easy 10 months almost normally from the cash in our accounts right now. but you have to bear in mind we’re closer to retirement and have been building some cash reserves.
our non-cash reserves include having been a good enough person over the years a handful of friends could hire either of us. i remember working my friend’s wine store for free when she first opened it and didn’t have many people/employees she trusted with the place. i only watched it a couple of days but good karma is always in the bank when you help a person out. we also have extra rooms in our house we could rent in case of real emergency. we don’t want to do that but we could.
10 months! That’s awesome. And yeah, at retirement I think I’d want a couple years in cash, even if not “optimizing” returns.
Like the “non-cash reserves” description. Rooms available to rent sure help a ton, as does a great social network.
I currently have about $10k in my emergency fund but I’m working to slowly build it up to maybe 6 months expenses which would be in the realm of $15,000 for a bare bones budget.
I should probably keep more food on hand than I do because it’s great to shop your pantry. Maybe if/when I get back into cooking more…
2/3 of the way there! And having more food on hand gives me a lot of peace of mind.
I’m one of those who never keeps a lot of cash sitting around even though I am retired since so many of my assets are fairly liquid and I don’t consider trying to time the market or stress about it. If and when I need to sell some stocks, I will not stress too much about the impact (or at least I don’t think I will) even in a down market because I have the privilege of a few thousand dollars not moving the needle much either way. I think, without ever putting too much thought into it, I have done the same thing as you have. Our budget has a lot of fluff in it and I could cut back without too much stress and we pretty much always have a stash of fish in the deep freezer from my partner’s exploits and can grow food year round (it’s lettuce season – woot woot!). I remember back when my kiddo was little and I went through my divorce at the same time my income got cut back significantly, I was able to dial things back and get to a place where money wasn’t a stress pretty quickly … because of privilege of having so much fluff in my budget before those unforeseen challenges.
On another note, it’s cool to see when bloggers are able to put into words stuff like this. I do this but never thought it through and when you do stop to think about it, it makes you realize you have a lot more flexibility than you give yourself credit for on a daily basis.
Having fluff in the budget makes for more fun in good times, and less stress in bad. It might not be so much fun having to take out the extra, but it sure is lightyears better than not being able to cut back enough.
Ok, I admit we are conservative but we could live for about 15 years on our cash equivalents in savings. That might sound crazy but it is a reasonable amount to have in cash for someone with much more than that already invested in stocks and bonds. Besides with money markets and high yield savings accounts paying up to 2%, cash is keeping pace with inflation, which is historically rare. The cash part is a small part of our portfolio but it is still fairly large compared to our annual spending.
15 years?! Holy cow.
I never thought it like that, a great point of view you have on this. We have around a year’s worth in emergency funds in a high-yield savings and having that cushion makes us stress less financially and know that we have a good amount stashed away. It provides a mental state of mind that our financial situation is less worrisome.
Yeah, I’m getting to the point where I think I’d like a year of cash cushion at some point too.
We have a significant amount in our monetary emergency fund, but great idea to be prepared for emergencies with more than just money! You’re far ahead of us in this regard. We’ll be super dependent on other people’s gardens if the grocery stores shut down. (Yikes!)
Time to keep some shelf stable food on hand 😉
Loved the article. Having lived through a couple of hurricanes, I understand the need to be prepared with more than just money. The time it takes for the power to come back on and waiting for grocery stores to fill up again can be daunting, but if the pantry is full and with a few emergency supplies on hand it becomes camping in your own living room.
Having had the chance to help others who lost everything in these disasters I count myself blessed. One thing that is important to have in these situations is cash (the bank accounts may be full, but with the power and internet out cash may be the only option).
Good point on having some cash for that reason! We keep some (but probably not enough) for those situations as well.
This is such a useful post – it’s so good to think about all the other intangible “emergency fund” backup plans, like backup jobs if you needed to work, and a full pantry. Some great ideas here!
It definitely helps me feel more secure!
I love the inactive side hustle idea; I hadn’t thought of that. Some items that make up our (let’s call it) emergency mitigation plan include a well-funded HSA, a good relationship with family and a church, stable government jobs, and living on the smaller of our two incomes.
Okay – I love calling it an emergency mitigation plan!!
I have to admit I’ve been a little slack about keeping the e-fund fully funded. Trying to shoot for 6-9 months but then I feel like it’s too much sitting there (high COL area here) and siphon some off to investments. I figure non-retirement mutual funds serve as sort of a 2nd e-fund, like if shit really hits the fan. So it’s always a struggle in my mind to find a balance. Like you, I try to cash flow unexpected expenses when I can so I don’t dip into savings. I admire those who can leave their emergency funds untouched for years and years. Often there’s just something (travel! Pets!) that makes me borrow from the savings. I also try to reimburse it though as quickly as possible, though!
Yeah, it’s hard to have so much sitting in cash doing nothing most of the time. HCOL here too, so our regular monthly expenses aren’t THAT low.
Thanks for a great article Angela. I’ll be 65 in a few months & my financial journey has played out almost word to word of your article. Have managed to put togerher 3 years worth of emergency fund and still continuing my side hustle – trading equity call & put options for income. All the best & keep writing.
Perfect! And thank you so much for your kind words 🙂
Great article! It’s been mentioned as a side note in a couple of comments, but I’d like to point it out specifically: Having a strong social network – friends, family, neighbors, acquaintances – can be a really valuable resource for emergency and non-emergency situations. Their help doesn’t even have to be in the form of money. It can be babysitting when you need to work extra hours, offering you a job or leads, a shared meal or two, and simply moral support in tough times.
So so true. I suppose I didn’t write about that specifically here because I talk about our community so much 🙂