One step towards financial freedom
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This is a special collaboration with Natalie Guillen a friend from my days at Stanford Business School and a professional at the intersection of finance & technology (fintech) who is passionate about economic development. Going forward, Natalie will be providing us easy and practical financial advice that we can apply in our lives immediately.
I read this quote by Mark Houlahan, "If you want your life to be a magnificent story, then begin by realizing that you are the author, and every day you have the opportunity to write a new page." At that time, I was miserable in a job I was afraid to leave. I was told by family from an early age not to leave my job before having another one lined up. But how could I find time to search for a new job? I was working full time for a multi-national company, 12-16 hour days plus a 2-hour commute. After more than two years like this, I had become increasingly exhausted but rationalized I was getting good work experience. I was indeed, until I got burnt out.
Leaving the company took emotional and financial preparation. I had never given up, and leaving felt I was letting myself down. But I had reached my limit, and I was ready to write a new chapter in my story. I did not have another job lined up, as my family advised, but I had an emergency fund to support my expenses for the foreseeable future. I knew I would be ok.
Some changes can be predicted, like my decision to leave was a matter of time. Others are unpredictable curveballs, like layoffs, medical emergencies, an accident, or the car breaking down. We cannot anticipate all the events, but we can be financially prepared to cope with them.
An emergency fund is money put aside to cover expenses when those unpredictable events happen. It is a reserve equivalent to 6-8 months of living expenses, and it can be built gradually. It’s a basic financial practice that buys peace of mind and freedom.
Here’s how to get started:
- Determine your monthly expenses, including housing, food, utilities, transportation, other expenses (don’t forget upcoming renewals in the near future, such as car insurance)
- Determine how much you can save every month
- Build your emergency fund on a separate account from your checking account
- Online banks and credit unions have saving accounts with no fees or minimum balances. The idea is to have a divide between your daily checking account and your emergency fund to avoid the temptation of spending emergency money on temporary wants. Remember the saying, “Out of sight, out of mind.”
- Pay yourself first! Treat your emergency fund as you would treat your mortgage or rental bill.
- Set up an automatic transfer every month if possible.
- Whether you can put aside $10, $50, or $500 every month, make it a goal, and consistently pay yourself before paying everyone else. You’re your biggest investment!
- Be patient. Your emergency fund will gradually increase. It doesn’t have to happen at once.
- If you have extra money on a given month, consider putting it in your fund, so it reaches its goal of a 6-8 months reserve sooner.
- Remember, your emergency fund is sacred, for emergencies only, and not meant to cover vacations or other luxuries.
Being financially prepared provides the freedom to choose. In my case, it gave me the courage to leave my company and start a new chapter knowing I would be OK. Other times, we have no choice. Life throws curve balls, and we cannot predict what will happen or when. But they will inevitably happen, and we can choose now to financially prepare for them.
We would absolutely love to hear from you! What is your opinion on having an emergency fund? Please leave your comments or questions below. If you enjoyed this post, share it with your friends and family!