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DM 81 - Top Tips for Growing Your Emergency Fund


Tips for a strong emergency fund. Hey, it's Jon from Financial MD, welcome to today's Didactic Minute.

 

Now you know from our Four-Step Roadmap that Step 2 is your Safety Net and that safety net is then broken down into two things – your emergency fund and your insurance program. We'll get into that in later videos. We've done it in previous ones. So check out all our back videos to get some details on that. We're always getting questions on disability insurance, life insurance, car, like all that stuff. It's important – yes. So if that answers that one question: How soon should I get it? As soon as you can afford it. But let's start with the emergency fund because for most residents that we talk to, that's the most important piece that hasn't been done yet and it's really not as hard as people make it out to be.

 

So number one is three to six months of your fixed expenses. Not all your expenses. Not three to six months of your income. Three to six months – that's a range; three at the minimum, six at the max. So take your fixed expenses; those things that you couldn't change if something happened – rent, utilities, cell phone. Not Netflix, not HBO Max – those are not necessary expenses or necessities; but what of those things. Once you have that number on a monthly basis, you can multiply that by three. If that's a struggle, then use a calculator. And that's the minimum that you should be shooting for. Now why do we have a maximum? Well, we'll get into this in other videos as well. Look on our compound interest videos. Look on all of those investment types of videos. But when you have money in a bank account versus an investment account that's actually invested in stocks, bonds, mutual funds, etcetera, it's got the potential to grow more in an investment account or a brokerage account. If you leave it in a bank, it's going to get much lower interest. Now we have a high-yield savings account – yes; but still there's more interest, more growth opportunities, in a brokerage investment account invested in a diverse basket of stocks and funds, etcetera. So, you don't want to have more than six months because, in our research, six months is too much money to have just sitting there getting no growth. It'd be very rare you would need more than six months' worth of fixed expenses. So we say when you hit that six-month max – I'm talking to you attendings – get that money into a broker's account invested properly.

 

So, a couple of tips before I go on how to get that emergency fund going.

 

Number one, set it up. Just open the account, okay? If step one you haven't done yet, do it; open it. And then start an automatic transfer. Start with something that's going to stretch you a little bit. If it's 50 bucks, if it's 100 bucks…whatever. You decide that for you and commit to that. The beauty of the world we're in with automation and technology, you can automate that and it'll happen without you knowing it. Now if you can do it twice a month a few days after you get paid, great! That'll make it a little easier; you probably won't feel it at all. Go to nerdwallet.com; bankrate.com. Find a good high-yield savings account that has a decent rate of return; that's easy to set up. You can hook up your checking account to it as soon as your paychecks get deposited. You set up an automatic transfer going twice a month, every two weeks – whatever –and get that happening. And check on it in 3 months, check on it in 6 months, and see where it's at. And if you found that you haven't hurt at all, you haven't been feeling that transfer, then up it a little bit. Push yourself…push yourself…push yourself. Every area of life – your career, your finances, your parenting, your marriage; push yourself a little bit to make yourself a little better. Make it a little harder on yourself and you'll grow.

 

So, hope that helps. This is Jon from Financial MD. Make sure you're liking this and sharing it if you found it helpful. We get out to more doctors if you can share this and like it. Leave comments. Get that algorithm moving. If you're seeing this on TikTok or Instagram, you know what to do. If you're seeing this on YouTube or Facebook, you know what to do. And be sure to check out the podcast. We're going to have episodes coming out every two weeks and there's much more in-depth and good tips there.

 

So, we'll see you next time.

 




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