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My Emergency Fund, Why I Keep $2,000 For Emergencies

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Early last year, following the January 17th post season game of Broncos vs Steelers, I recall reading Dave Ramsey’s “Total Money Makeover”. Yes, I was desperate.

In one of the first chapters, he goes on and on (he literally can not shut up about it) about having an Emergency Fund. Yes, others have mentioned it, but for me, Dave Ramsey was the first to tell me I need to get on this. He was my first.

Here’s the thing with Emergency Funds. Everyone seems to have a different way they set these up. Davvy-Poo Ramsey talks about putting money in an envelope under your bed for safe keeping to pull out in dire emergencies. His believes that if people have an emergency fund easily accessible, they will spend it. Apparently he believes his audience has no self-control, maybe they don’t, but I went a different direction. I will always love Davvy-Poo for starting on my Emergency Fund journey, but here’s where I deviate.

My Emergency Fund

I have everything electronic. I keep $2,000 in my checking account as my “Emergency Fund” where it’s readily available. I don’t have cash hidden under my bed like National Geographic’s Doomsday Preppers (how the mighty National Geographic has fallen).

My active checking account fluctuates between $2,000 and $4,000 each month to cover my monthly expenses. At the end of the month, anything over $4,000 goes toward my savings account and that into my dividend portfolio. Here’s what I mean (infographic below):

Emergency Fund Infographic-01

Why I set up my Emergency Fund like this?

I have a method to my madness. Two reasons why I set up my Emergency Fund like this:

  1. My checking account is immediately accessible for debit withdraw if needed. PLUS my checking account gains interest (albeit a small amount) my emergency fund is large enough I make about $0.20 each month. I couldn’t do that hiding cash under my bed like a caveman.
  2. The biggest reason is fees. Overdraft fees are ridiculous and I’ve done that a couple times when I kept extra cash in savings. Since my Emergency Fund is the base of my checking account, if I go over my monthly expenses, it just pulls cash from my Emergency Fund which is the foundation for my checking account. No OVERDRAFT FEES EVER.

How much do you need in an Emergency Fund?

This is where a lot of people differ on how much they should have saved in an emergency fund. For me, I try to have $2,000 in my immediate emergency fund. This will cover about 1 month’s expenses for me. My emergency fund essentially gives me enough time to access my stock portfolio if needed.

In case of a legit emergency, here’s what I’d actually do

I’ve never had a legit emergency that’s affected my income (I’m young and invincible), but if I ever did, I have a plan.

  1. I would have immediate access to $2,000 in my checking account
  2. I would have immediate access to my emergency fund of $2,000 also in my checking account
  3. I would have semi-immediate access to my saving account which usually holds $4,000. It’s a semi-secondary emergency fund. This also makes interest =)
  4. That would give me time if needed to sell stocks and access my portfolio currently made up of $7,000.

With my average monthly expense of 2,000. My emergency process would cover me for 7.5 months if I could make no money what so ever. That’s pretty cool! Yes, I have friends and family that would be willing to help, but it’s important to me that I could support myself.

How do you set up your emergency fund?

How to make money buying for other people

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Here is a quick story of how I made $21.80 by offering to pick up the bill for other people. This might work for you too.

Last Thanksgiving before leaving Denver and heading home to visit my parents in Iowa. My father asked me to pick up a few things that he couldn’t find back in Iowa. With Denver being a major metropolitan area, he figured it would be here, as well as some other errands since I would be out.

Here is where the story gets interesting, at Target while picking up these specialty things. Target had their Black Friday deal of buying $20 worth of merchandise, you get a $5 gift card for your next purchase. I didn’t know about this or think about it till checking out when the cashier handed me four $5 gift cards. Not sure why she didn’t put them all on one card, but that’s beside the point. It was pretty cool. Later I added another $10 at IKEA and spent a total of $90. Keep in mind, the entire time, I used my 2% cash back credit card so my credit card company paid me $1.80 just for using my card.

Now when I got home, I handed my dad the receipts for $90 and he promptly paid $90. So I was returned my original $90 and had an additional $21.80 from Target’s promotion and my cashback card.

My Dilemma:
Give Money Back – Do I give my father back $21.80 since that was earned through his errands?
Keep the Money – I paid $90 for the items he asked for and he paid me $90 back. That should be the end of story, right?

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Photo Credit: Pixabay

What happened – I offered the gift cards to my father since they were received when I was acting on his behalf picking up his errands. He informed me to keep them to help pay for the gas running around town. While the $20 was more than what gas was, he’s just that kind of generous guy. As for the 2% cash back from the credit card. I have no reservations about keeping that. It was my choice to pay with a credit card rather than cash.

Lesson Learned:
After that, I learned the benefits of picking up the check. Now when eating out with friends and the waiter won’t split the check, I now always offer to pick it up and people can pay me via Cash, Pay Pal or Venmo. Usually, it’s easier for the waiter and my friends thank me for taking care of it. I have yet had anyone not pay me back and I love the cash back. A meal with 12 people that cost $250 generates $5 from my 2% cash back credit card. That’s $5 I didn’t have before.

Pretty cool right?