Prepare for a Rainy Day (Part 3)

Christopher D. Flis |

Accumulating Your Emergency Fund

In the first two parts of this three-part series, we covered the importance of one’s Emergency Fund and determining the size of the fund.  In this final installment, we will talk about accumulating the funds.

Up front, this is not an easy task.  With Emergency Fund sizes ranging from 3 to 18 months of living expenses, it can take a bit (okay, a lot) of time to build-up this fortress.  Nevertheless, I strongly recommend getting there and I will provide a few Emergency Fund hacks that may assist along the journey.

Credit Card Debt

Simply put, credit card debt must go to absolute zero – to reiterate, credit card debt is not part of any viable financial plan.  Some techniques for tackling credit card debt:

(i)   Pay down the highest rate card first, repeat until all debt is extinguished.

(ii)  Pay down the lowest balance card first, repeat until all debt is extinguished.

(iii) Apply for a new credit card offering an interest-free period, divide the debt by the number of interest-free months, and pay until all debt is extinguished.

However you do it, the credit card debt has to go!

A Realistic Amount Calculation of Monthly Expenses

When you find yourself in a true emergency, your spending is going to obviously change significantly.  However, there are some things working in your favor.  Taxes, monthly savings, and excursions (travel, new iPhones) likely will not happen, so you can reduce your monthly need by what you would normally commit to these expenses.  This will bring the monthly and overall Emergency Savings numbers down.

Low Hanging Fruit

Almost everyone has likely read frequent examples of cost-cutting.  Gourmet coffee and cigarettes are typical – each of which represent a perhaps daily expense where if you saved that money and invested it over 30 years, you could seemingly retire to your own private island.  Those two make excellent poster children for saving.  However, relatively few people smoke (15.1% of adults in 2015) and depending on what you read, coffee may enhance your health!

In any case, my point in this section is we are all aware of areas in our financial lives where we can realize efficiencies.  Obviously, you should balance those efficiencies with how you live your life.  For me, high-speed internet at home is staying connected until the bitter end.  Conversely, I will gladly wear a jacket around the house all Winter.  Everyone has their own indulgence uniqueness.  For you, find one or two and focus on them.

Food Expenses

Eating out is expensive.  The strictest answer is just don’t.  The more pleasant one is to pick and choose a bit more carefully, and as a substitute, consider cooking more or utilizing meal delivery offerings becoming more popular now.  For lunch at work, you can garner significant savings by brown bagging it.  This is another lifestyle choice, though I can say from personal experience this makes an enormous difference in discretionary spending.

For groceries, if you are in the military, shop at the commissary!  This benefit is frequently cited as one of the most used and appreciated benefits among retirees.  The savings provided are absolutely real and substantial.  For everyone, even commisarians, one technique I have recently picked up is as follows:  before checking out (assuming my 20-month old son is not losing it in the cart), I look over my entire selection of food and pick four or five things to put back.  Typically, this will knock somewhere between $5 and $15 from the bill.  To date, I cannot recall missing anything I put back!


This is another area to achieve some savings.  My suggestion here is to focus on the experience and the people you’re with more so than the actual amount spent.  You can have as wonderful a time on a road trip to a camping destination as you can on a 5-Star European extravaganza.  Several tools have evolved over the years to assist in this regard – many Airbnb providers have developed experience-driven offerings…they’re out there, you just have to search for and find them.

Monthly Savings

Any executable budget should have an allotment for both savings and discretionary spending.  Until your Emergency Fund is funded, I recommend all savings point toward that account.  It is amazing how a positive feedback loop forms once saving starts.  In the best case, it is equivalent to an inoculation after which thriftiness pervades every area of your financial life.  And once you get there, you never want to go back to being Emergency Fund-less.

Closing Remarks

I have spent a healthy amount of time explaining a relatively simple concept.  In this case, the principle is a bit easier than the practice:  A 2016 Federal Reserve Survey found that 46% of Americans could not come up with $400 to cover an “emergency”.  So, for as harsh as it sounds, you gave to sweat your way to your Emergency Fund…there aren’t many shortcuts.

My final point is one I unfortunately will be unable to scientifically prove - the world is more affordable when you have a fully-funded Emergency Reserve.  Obviously, prices are unaffected by reserve fund balances; however, psychologically, knowing what you can and cannot afford AND how difficult it is to accumulate your savings, you naturally become a more conspicuous consumer – which I define as one who doesn’t waste money on things she doesn’t need.  With that philosophy, you develop a strict cost-avoidance and can seriously grow your net worth over time.