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Empower Your Finances -The Right Steps to Building an Emergency Fund - DM 83

What's the right emergency fund? Hey, it's Jon from Financial MD, welcome to today's Didactic Minute.

 


Now I talk about emergency funds constantly. I talk about it in every single review we have with our doctors. What is an emergency fund? How much should be in it? Most of you guys know that. If you haven't, check out our workshops. Come to one of our dinners. Check out our videos. They're all over. I'll give you a hint – three to six months of your fixed expenses, okay? And you got to figure that out by knowing what your expenses are, which, check out our previous videos on budgeting and spending for that. But today, how to do an emergency fund right, where to put it – I'll give you a quick one on that. Don't invest it. It should not be in stocks, mutual funds, bonds, Betterment accounts, Vanguard – anything like that – unless it's strictly in the money market. Now these days – it's the beginning of 2024 right now – we're still getting 5% plus in money market accounts. Great, and frankly, that's fantastic. We haven't seen that in decades and there's no reason to look elsewhere where to put your emergency fund, but that's a good spot for an emergency fund because that's guaranteed, often FDIC-insured, depending on how much you have, if that's a concern to you. Or you can try high-yield savings accounts. Those are a little more stable, but again, you should be able to get 4 to 5% in a high-yield savings account. Go to bankrate.com. Go to nerdwallet.com. Those are places that can list – every month it changes – what banks are paying the best high-yield savings rates. That's where your emergency fund should be.

 

The other tip I always say is to put it somewhere where you're not going to see it every day because you know this. Answer this out now, out loud, right now. If you see your emergency fund when you pull up your checking account balance every day, what are you going to think? "Oh, that's money I have to spend." Or if you're thinking, "Hmm, can we take this trip with a bunch of buddies?" Got to go to a wedding. We want to go. We want to have a nice time. We'll get a hotel, play, and blah, blah, blah. And you think, "Can I afford it?" You're going to pull up your bank account. We all do this. It's bank account budgeting. And if you have your emergency fund on that same page, you're going to think you have more money than you really do. So don't do that. Save yourself from yourself. I do this. I have my emergency fund at a completely separate bank from where my checking account is. And having the beauty of online banking with high-yield savings accounts at completely different banks, you can easily take that money out and put it in your checking account if you truly have an emergency – that's the way to do it. And lastly, this is where we get to the beauty of becoming wealthy, is small, boring, consistent decisions made over long periods of time. Set up those small decisions. Do it automatically. Set up automatic transfers to go into that emergency fund. Start with something that hurts a little bit. It might be 50 bucks for you. It could be 100 bucks for you. Try weekly. Try monthly. Try something. Set it and forget it. And in four or five months, check back again and see. You'll be amazed at the progress you made and you probably didn't even feel it.

 

So, if you've got questions, shoot them in the comments. I love to talk about this.

 

This is Jon from Financial MD, we'll see you next time.

 



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