Speaker 1: Welcome to How to Money. I'm Joel and I'm Matt,
Speaker 1: and today we're discussing everything you need to know about
Speaker 1: emergency funds. Oh, I'll tell you about my free water heater. No,
Speaker 1: please tell me. Are you really interested? You don't sound
Speaker 1: interested at all. I love free and I'm actually curious
Speaker 1: a water heater. Is that we talked about the asking
Speaker 1: for a discount episode, we talked about your electric water
Speaker 1: heater a couple years ago. That's right, asking for the
Speaker 1: discount on the instant, but so getting an actual free
Speaker 1: water heater, yeah, man, free it's electric as well. As
Speaker 1: soon as I said that, like damn, I know, I
Speaker 1: knew you were gonna say that. Yeah, electric high efficiency
Speaker 1: water heater. It's like six months old. I got that
Speaker 1: jang for free. So a plumber I know that we've
Speaker 1: we've used them before. Basically was ripping out redoing the
Speaker 1: plumbing on a on a renovation nearby and they were
Speaker 1: just told to get rid of this water heater, uh
Speaker 1: and not you know, basically all the plumbing and they
Speaker 1: were looking at it and they realized literally it was
Speaker 1: only six months old, and they just felt so bad
Speaker 1: getting rid of it. So he thought of who might
Speaker 1: would want who likes free stuff that I know? The
Speaker 1: host of the Cheapo podcasts. Long story short, thought of
Speaker 1: me came by dropped it off in my driveway for me,
Speaker 1: and yeah, literally, yes, I know. He's literally. I wasn't
Speaker 1: even home and I got I came home and there's
Speaker 1: like basically a bran new water heater sitting there waiting
Speaker 1: on me for me to use, and one of our
Speaker 1: properties coming up here pretty soon. Dude, I love it.
Speaker 1: That's awesome. And guess what I'm gonna call when it
Speaker 1: comes time to hook up all the hook up all
Speaker 1: the pipes that guy. Yeah, exactly, So dude, when when
Speaker 1: he's he's happy. Plus they do awesome work. So yeah, man,
Speaker 1: pretty sweet deal. Huh you're jealous? Uh? Yeah, so just
Speaker 1: putting this up to leave me? I know, you get
Speaker 1: plenty of deals that I don't get to partake in.
Speaker 1: So well, there any plumbers out there that want to
Speaker 1: give me any water heaters, I'm certainly open to it.
Speaker 1: I welcome free stuff on my on my doorstep. Yeah.
Speaker 1: Speaking of free stuff, we're going to our neighborhood beer fests. Yeah,
Speaker 1: I'm so stoked, dude. It's pretty much the best weekend,
Speaker 1: one of the best weekends of the year. I'm so
Speaker 1: excited about it, and I think this is my seventh
Speaker 1: year doing it. Really Yeah, and you're an old man,
Speaker 1: I know. The great thing about our neighborhood beer fest
Speaker 1: is that we volunteer, right, and so every year you
Speaker 1: and I we pour beer for the patrons, the people
Speaker 1: that actually pay money to go to our neighborhood beer festival.
Speaker 1: The best things are that we raise a ton of
Speaker 1: money for our neighborhood, right, for a neighborhood organization, which
Speaker 1: is then able to deploy it in ways to beautify
Speaker 1: the neighborhood. And exactly the beer fest falls under the nonprofit,
Speaker 1: and so the nonprofit supports local neighborhood organizations. And I'm
Speaker 1: pretty sure one of the recent emails they sent out
Speaker 1: said they've raised over a million dollars in the past
Speaker 1: ten years. That's incredible, Yeah, which is huge for nonprofit,
Speaker 1: especially a nonprofit where the majority where the majority of
Speaker 1: their funds are coming from people drinking beer making the
Speaker 1: world a better place. Man. Yeah, and so, and the
Speaker 1: other beautiful thing is you and I get to drink
Speaker 1: beer for free all day, which is awesome because if
Speaker 1: you're pouring beer, you you still get to take a
Speaker 1: little on the side, take some take some SIPs. And
Speaker 1: so that's really fun to get to take some beers,
Speaker 1: a good way to try a lot of new beers. Yeah,
Speaker 1: some someones that we've had before too. Yeah. So uh,
Speaker 1: if you guys follow us on tap, you might see
Speaker 1: that we blow it up at the beer fest uh
Speaker 1: this weekend. Oh and so Matt, I'm also really pumped
Speaker 1: because we ordered some coozies to distribute there. Oh yeah,
Speaker 1: with our logo on it. I'm really pumped to handles
Speaker 1: out and kind of let people know what we're what
Speaker 1: we're doing here over poor not poor. You know, a
Speaker 1: lot of different neighborhoods have beer fest now as well.
Speaker 1: And so that's the other thing to consider volunteering your
Speaker 1: own local beer fest. Instead of forking out the money
Speaker 1: and coming over and seeing us, which would you know,
Speaker 1: that would be awesome, consider pouring and volunteering with your
Speaker 1: own local beer fest. Yeah. And the great thing is
Speaker 1: it's a blast, it's a fun day, it supports neighborhood
Speaker 1: and on top of that, you save some money to
Speaker 1: drink beer. Speaking of drinking beer today on the show,
Speaker 1: we're drinking a beer by Avery Brewing Company out of Boulder, Colorado,
Speaker 1: a really, really, really good brewery. You already know Colorado
Speaker 1: makes awesome beers and Avery is one of the best
Speaker 1: producers even in the state. And today we're drinking a
Speaker 1: beer called Lily Koi Cupolo, and it's a Belgian style
Speaker 1: white ale brewed with spices and passion fruit. Man, that's
Speaker 1: pouring that nice kind of cloudy golden almost like a
Speaker 1: little bit of ruby kind of color there to it. Yeah,
Speaker 1: and a nice nice ruby and orange. It's got kind
Speaker 1: of kind of a grapefruit look to it. Yeah. Yeah,
Speaker 1: it's got that fade. So I've had this before, like
Speaker 1: once or twice before. You love this beer. I love
Speaker 1: this beer. I am curious to taste it again because
Speaker 1: the last time I had it, I was like, I
Speaker 1: don't know about this. Guy comes in six packs and
Speaker 1: you can get this because Avery is distributed in most
Speaker 1: states now, I think, so you can probably find this
Speaker 1: in your local package store. I love the passion fruit.
Speaker 1: It almost has kind of a smoothie issue kind of
Speaker 1: vibe to it with the with the passion fruit kind
Speaker 1: of blended up in there. It's tropical tart a juicy
Speaker 1: and delicious. You know, it does taste a little better
Speaker 1: than I remember it. It does have those tropical fruits.
Speaker 1: It kind of remind makes me think of like a
Speaker 1: little tropical fruit cup, you know, like, oh yeah as
Speaker 1: a kid, you don't you're not talking about most totally. Yeah,
Speaker 1: you feel that, Yeah, like one of the like the
Speaker 1: dull pineapples cup things. Yeah, a little sugar. I mean
Speaker 1: certainly this isn't crazy sweet like that, but it's got
Speaker 1: like the token cherry, like just like that one cherry
Speaker 1: that you're allowed to have in it. Yeah, it kind
Speaker 1: of tastes like sliced pineapples that you kind of get
Speaker 1: as well. Yeah, it's totally get The pineapple got a
Speaker 1: lot of throwback flavors from my childhood. I love the
Speaker 1: can too. It's a cool color blue with a ticky
Speaker 1: man on the front. This is a great summer beer because, yeah,
Speaker 1: it's light, it's refreshing, it's easy to find. What's the
Speaker 1: add on this? Five point four easy? Yeah, you can
Speaker 1: drink a couple. I totally recommend the Avery Brewing Company.
Speaker 1: Little Quoi Cupolo dang tasty. What's up with the tiki man?
Speaker 1: I feel like tiky bars and sort of tiki theme
Speaker 1: is making a comeback. Heck, yeah, you think you've noticed
Speaker 1: that loved me a good tiki bar man. I think
Speaker 1: in general, themed restaurants might kind of make a comeback
Speaker 1: from Is that like the seventies or the eighties where
Speaker 1: there's like the themed restaurants. Yes, and I hope they
Speaker 1: do Beame restaurants are so fun. I was like right
Speaker 1: after Alley, Yeah, did you go to Medieval Times as
Speaker 1: a kid or like in middle school? My parents totally
Speaker 1: took me in the Medieval Times and oh, in the
Speaker 1: Dixie stamp Dixie and like near Dollywood in Tennessee, the
Speaker 1: Ryanstone cowboy jumpsuits, riding around on the horses. I distinctly
Speaker 1: remember chasing chickens on on the dirt floor in front
Speaker 1: of a giant crowd with my sisters. Yeah, when we
Speaker 1: were young at the Dixie Stampede. So what you're saying,
Speaker 1: that makes me picture your children chasing out And like
Speaker 1: when you said that, immediately pictured your girls, not you
Speaker 1: as a child, and we're so awkward, and my girls
Speaker 1: included and and so I would imagine they would fall
Speaker 1: faced ch almost immediately. So yeah, it was fun. All right,
Speaker 1: Matt topic, we're tackling today everything you need to know
Speaker 1: about emergency funds. Yes, emergency funds. This is something we
Speaker 1: talked about briefly when we did the Budgets episode forever
Speaker 1: ago now, um, but we decided it's time to do
Speaker 1: an entire episode on emergency funds because they're just so clutch.
Speaker 1: They don't get nearly the the attention I think that
Speaker 1: they need and that they deserve. And so that's why
Speaker 1: we're gonna spend an entire episode. We're gonna talk about
Speaker 1: how to get started on your own if you don't
Speaker 1: currently have one, and uh yeah, hopefully by the end
Speaker 1: of this, if you don't already have an emergency fund,
Speaker 1: you you'll be well on your way to getting yours
Speaker 1: set up and running. Yeah. And first, really, there's a
Speaker 1: huge problem in the United States. Stats bear out that
Speaker 1: the majority of Americans couldn't get their hands on three
Speaker 1: thousand dollars cash if they had a big car repair
Speaker 1: that they need to put money towards. And a lot
Speaker 1: of Americans also couldn't even come up with five dollars
Speaker 1: cash in the case of a minor emergency. And we
Speaker 1: live in the one of the richest countries in the world,
Speaker 1: and those facts are kind of startling when it comes
Speaker 1: down to it that most people are completely unprepared for
Speaker 1: an emergency. And that's a huge part of the reason
Speaker 1: that that this episode and what we're gonna talk about
Speaker 1: here with emergency funds is crucial, yeah, man, And I
Speaker 1: mean the problem is then, is if you don't have
Speaker 1: an emergency fund set up and you you face an emergency,
Speaker 1: well you're probably gonna have to put that expense on
Speaker 1: a credit card, and that obviously leads to a downward
Speaker 1: cycle because then you're making payments on that and then
Speaker 1: all of a sudden, something that may have only cost
Speaker 1: seven fifty bucks and like car repair costs, is now
Speaker 1: costing you, you know, a thousand bucks twelve hundred bucks
Speaker 1: over over time. Yeah, And in large swass of America,
Speaker 1: that's what tidle loan places do and payday lenders. They
Speaker 1: take advantage of people that are in emergency situations and
Speaker 1: don't have access to any amount of cash really to
Speaker 1: get out of it and can't wait till pay day.
Speaker 1: And so there are a lot of people living their
Speaker 1: lives on the margins. And it's not just people living
Speaker 1: in poverty. But there are a huge portion of Americans
Speaker 1: making good money, right. And there was a New York
Speaker 1: Times article that you and I both read, oh yeah,
Speaker 1: about a successful dude who had published books and was
Speaker 1: still author living paycheck to paycheck and could not seem
Speaker 1: to get ahead financially. And just because you have a
Speaker 1: big income, if you're spending just as much or more
Speaker 1: than you make, you're still living paycheck to paycheck. Yeah,
Speaker 1: you just live from bigger paycheck to bigger paycheck. So
Speaker 1: this is a problem across all income levels in America.
Speaker 1: We spend more than we make, and our emergency funds
Speaker 1: are nil, and it leads not only to financial hardship,
Speaker 1: but then emotional and marital and relational stress in our lives.
Speaker 1: Stresses you out, man. Obviously we're talking about this from
Speaker 1: a financial angle, right. We don't have enough margin. We
Speaker 1: don't have enough cushion in our life. Not only that, though,
Speaker 1: I feel like we just don't have enough margin in
Speaker 1: our lives when it comes to time, and like the
Speaker 1: amount of time that we have for other people and
Speaker 1: those around us in need, just situations where it might
Speaker 1: take us out of our usual you know, get up,
Speaker 1: go to work, make money, come home or spend money
Speaker 1: on the way home, and then go to sleep and
Speaker 1: you know, nse and repeat. That might be a topic
Speaker 1: for another episode, but yeah, I don't know. That's just
Speaker 1: something I wanted to mention. But hopefully while we're discussing
Speaker 1: the financial aspects of having an emergency fund and what
Speaker 1: that does to your life, think about two where your
Speaker 1: time goes? And oh yeah, can you build essentially reservoirs
Speaker 1: of time that as opposed to go go go busy,
Speaker 1: busy busy. Uh? Creating those reservoirs of time is crucial
Speaker 1: And yeah, this podcast, right, we're all about saving money,
Speaker 1: but we're also about living mindfully and I think it's
Speaker 1: just a really important thing to discuss, and not many
Speaker 1: people are discussing that, Like, yeah, it goes hand in hand, right, Yeah,
Speaker 1: we prop up business and uh and getting stuff done
Speaker 1: and you know, I'm all about working hard, but there's
Speaker 1: a downside too, the way our culture treats work and
Speaker 1: the idea of business in general. Yeah, so obviously that
Speaker 1: mean what we're gonna talk about is the emergency fund.
Speaker 1: So Joel, do you have an emergency fund? I sure do. Man.
Speaker 1: Do you remember always having an emergency fund. I remember
Speaker 1: always prioritizing savings, right, so always building the savings up,
Speaker 1: and I didn't always call it an emergency fund, you know,
Speaker 1: when I was in my early twenties, but I was
Speaker 1: always building my savings level. So I was always prioritizing
Speaker 1: putting money in my savings account every month and watching
Speaker 1: it grow. I just wasn't calling it an emergency fund
Speaker 1: at that point in time. Yeah, that was kind of
Speaker 1: my approach. Honestly. That's basically what I did up until
Speaker 1: I became like a Dave Ramsey junkie. When I was
Speaker 1: like in my early in my early years, like shooting
Speaker 1: them into your veins, what are you doing? Basically, that's
Speaker 1: weird man. Early on, you know I was, I was
Speaker 1: pretty hardcore, and that's when I was like, no, it's
Speaker 1: called an emergency fund. This is what we're calling it,
Speaker 1: and it's got to be you know, this exact length,
Speaker 1: it must be this exact dollar amounts, and you know
Speaker 1: other rules associated with sort of his approach to things.
Speaker 1: And you've kind of calmed down on that a little
Speaker 1: bit now. And and I think that's why this is
Speaker 1: interesting too, because I think there are some hardcore personal
Speaker 1: finance people that would be like, this is what you
Speaker 1: need to have and and I think there's some good
Speaker 1: rules of thumb in what they're saying, but I think
Speaker 1: there's also a lot of caveats that will that will
Speaker 1: hitting this episode as well. Yeah, there's a lot of
Speaker 1: room for flexibility, and a lot of it depends on
Speaker 1: the individual. It depends on sort of their life stage,
Speaker 1: where they are in life, and overall how sort of
Speaker 1: financially prepared they are for financial events in their life.
Speaker 1: So quick tip to people that don't have one at
Speaker 1: all right now, and they do find themselves in that
Speaker 1: boat that man, if my transmission went out tomorrow or
Speaker 1: if I lost my job next week, I have no
Speaker 1: idea where I'm gonna get money. I'm gonna be using
Speaker 1: high interest rate debt right I'm gonna be going to
Speaker 1: the payday lender or using my credit card, tapping my
Speaker 1: credit card right. Really, for people like that, their first goal,
Speaker 1: the necessity right now is to start saving little by
Speaker 1: little and accruing an emergency fund of five two thousand dollars.
Speaker 1: That's a goal that's that's feasible, that's reachable if you
Speaker 1: have income, and and that's Ultimately, the first goal that
Speaker 1: needs to be set reaching a level like that where
Speaker 1: at least you could meet some sort of financial distress
Speaker 1: without having to tap into some sort of high interest
Speaker 1: rate revolving debt. That's a really good first goal to
Speaker 1: have in mind. Yeah, if you don't hear anything else,
Speaker 1: just go do that. Like if you gotta cut the
Speaker 1: episode off, now, go ahead and just make sure you
Speaker 1: write that down and yeah, wait, I have lots more
Speaker 1: to say, and well, yeah, we'll say there's a lot
Speaker 1: more to cover because it varies, but but yeah, that's
Speaker 1: that's the first thing. So most definitely, so juel first off,
Speaker 1: So essentially what is an emergency fund? So an emergency
Speaker 1: fund is essentially the savings account that's separate money only
Speaker 1: used for major financial emergencies. And typically the amount that
Speaker 1: you would want stored in an emergency fund would be
Speaker 1: three to six months of your core expenses. And ultimately
Speaker 1: what that means is, let's say you did lose your job.
Speaker 1: You could pay the mortgage, you can put food on
Speaker 1: the table, you could keep the lights on four three
Speaker 1: to six months while you're looking for work. Yeah, so
Speaker 1: it's important to point out there though, is that that's
Speaker 1: like the emergency, right. So what the emergency was in
Speaker 1: that situation wasn't paying for groceries. It was the job
Speaker 1: loss right to cover the regular expenses. And some other
Speaker 1: situations where it might call for the emergency fund, right,
Speaker 1: say you've got to hide it higher deductible on your
Speaker 1: car insurance, which we would recommend to keep your monthly
Speaker 1: expenses down because it's not likely that you're going to
Speaker 1: get in an accident. But if you do and you
Speaker 1: have a higher deductible, say a thousand bucks is totally
Speaker 1: reasonable to have, you're gonna need to find a thousand
Speaker 1: bucks to put towards your vehicle if you you know,
Speaker 1: if it's totaled. Yeah, and you'll save big money every
Speaker 1: year by having a higher deductible in your homeowners insurance
Speaker 1: and hopefully you know, the goal is never to have
Speaker 1: to use it. But if a tree falls on the
Speaker 1: corner of your house, causes major damage and you know,
Speaker 1: goes through the bathroom and you gotta have you gotta
Speaker 1: have a new roof put on in a whole new bathroom,
Speaker 1: uh installed, then five thousand dollar deductible is that's a
Speaker 1: lot of money, man, That's an emergency right there, right,
Speaker 1: And so an emergency fund is great for something like that,
Speaker 1: whether it's a small fix that you that you can
Speaker 1: do yourself without insurance, or whether it's just a high
Speaker 1: deductible that you have to meet. Having that emergency fund
Speaker 1: for situations like that, of these extenuating circumstances that you
Speaker 1: know can happen but are unlikely and you're hoping and
Speaker 1: praying don't happen. I mean, that's exactly what emergency fund
Speaker 1: is for the things that you want to stay away from.
Speaker 1: The what an emergency fund is not for. It's not
Speaker 1: for putting new tires on your car, it's not for
Speaker 1: routine bills, it's it's not for paying for groceries when
Speaker 1: you currently are employed. Right, So the emergency fund, you
Speaker 1: want to kind of keep that separate and you don't
Speaker 1: want to use it for some of these things that
Speaker 1: you really should be budgeting for. It's for that unexpected really, yeah,
Speaker 1: all those things you should be budgeting for. There's things
Speaker 1: even if it happens not even just once a year,
Speaker 1: but say once every few years, there are certain expenses
Speaker 1: that you just need to be looking ahead to and
Speaker 1: planning not only every year, how much to set aside
Speaker 1: for but literally every month to break that down and
Speaker 1: to know how much you need to set aside. I mean,
Speaker 1: that's that's what it takes. That's what it takes planning
Speaker 1: that way. When the bill comes due, you're prepared and
Speaker 1: it's not an emergency at that point because it's something
Speaker 1: that you can plan on, all right, And so by
Speaker 1: the very definition of emergency, it's an urgent need, right,
Speaker 1: And so emergency funds do need to be accessible and
Speaker 1: fairly liquid. So if that's the case, Matt, that means
Speaker 1: that your emergency fund and we'll get into some caveats later,
Speaker 1: but then it should probably be in a savings account
Speaker 1: earning a decent rate of interest, and preferably even a
Speaker 1: savings account that is separate from the one that you
Speaker 1: normally use. Yeah, Man, So for us, we actually have
Speaker 1: our emergency funds set aside in our savings account. So
Speaker 1: currently we have most of our money in ally bank,
Speaker 1: where we have our sort of day to day expenses.
Speaker 1: Monthly expenses come out of our checking account, but then
Speaker 1: our actual emergency fund chunk is sitting there and the
Speaker 1: savings account because that's where we're earning the high interest
Speaker 1: rate and hopefully your emergency fund is going to be
Speaker 1: a decent chunk, and so you do want to find
Speaker 1: a high interest rate of savings, that's the best place
Speaker 1: to store it. Uh. You definitely don't want to put
Speaker 1: an emergency fund in a four oh one k, right,
Speaker 1: because then you're you're subject to the womens of the
Speaker 1: stock market, and it's not liquid cash you want to
Speaker 1: have in a bank account. And by the way, I
Speaker 1: recently opened a new account with a bank called c
Speaker 1: I T and they pay a lot more than what
Speaker 1: my bank Capital one was paying, and so I went
Speaker 1: from one percent to one point seven. Uh. And so yeah,
Speaker 1: for a large chunk of change, right, earning a little
Speaker 1: bit more every month is where it's at. And there's
Speaker 1: an article on on the website just kind of comparing
Speaker 1: and talking about my experience switching, if you want to
Speaker 1: check that out. So that being said too, if you're
Speaker 1: just more of a nerd, it's not necessary that you
Speaker 1: have your emergency fund in a completely separate account. If
Speaker 1: you're able to create a floor, you know, or like
Speaker 1: a blind that you never kind of dip down into.
Speaker 1: I mean, that's your emergency fund. It doesn't necessarily have
Speaker 1: to be a completely separate thing, because a lot of
Speaker 1: times it just gets complicated. And so and that's the
Speaker 1: last thing we want is for your listeners to not
Speaker 1: do this because you're like, I don't want to have
Speaker 1: to open up another account. I'm just happy with whoever
Speaker 1: I have. Yeah, and I completely you know what I'm saying. Yeah,
Speaker 1: that's kind of how I approach it. I can keep
Speaker 1: everything in the same fund. I think it's important probably
Speaker 1: for a lot of people to have a second fund
Speaker 1: just it helps mentally, but more barriers and sort of walls. Yeah, yeah,
Speaker 1: and then you know, it's like kind of untouchable or whatever.
Speaker 1: But for people that you know, do have like their
Speaker 1: financial act together, uh, creating a separate account certainly isn't necessary.
Speaker 1: And just knowing that there's a floor that you don't
Speaker 1: go beneath is like a really helpful way of doing it. Cool,
Speaker 1: So that's the first thing. Consider opening a separate account,
Speaker 1: or if you know that you're an ultra nerd, create
Speaker 1: that blind start sacking that money away that you know
Speaker 1: you're not going to touch. Yeah. The next thing to
Speaker 1: do is, let's say you don't have one or you're
Speaker 1: kind of a nube, right, at at starting this emergency fund. Well, first,
Speaker 1: know that anybody can do it, and then we'll kind
Speaker 1: of give you a couple of tips to get started.
Speaker 1: My favorite way to actually big time jump start electrify
Speaker 1: your emergency fund is to use a tax refund to
Speaker 1: do that. And so a lot of people probably just
Speaker 1: recently got their tax refunds. We talked about in an
Speaker 1: earlier episode what to do with a tax refund, and
Speaker 1: that was one of the things we mentioned. Using that
Speaker 1: refund to jump start your emergency savings is an awesome
Speaker 1: way to handle that money. So if you have your
Speaker 1: still lingering around, you haven't blown it all on you know,
Speaker 1: fancy craft beer or a trip to Fiji, consider putting
Speaker 1: some of that money aside into an emergency fund, save
Speaker 1: for the future, safe for a rainy day, create some
Speaker 1: of that margin in your life and reduce some of
Speaker 1: that stress that comes along with the stress and headaches
Speaker 1: that come along with not having an emergency fund set up. Yeah,
Speaker 1: I see no better way to spend that tax refund
Speaker 1: than to relieve stress. You know, what better way than
Speaker 1: just to simplify things and to just take stuff off
Speaker 1: of your mind that you don't have to worry about
Speaker 1: nearly as much. Yeah, I mean, if you've got your
Speaker 1: financial act together, an infusion of cash like a tax
Speaker 1: refund can be used for a lot of great things.
Speaker 1: But if you don't, in your emergency funds starved right now,
Speaker 1: that's the perfect place to put that chunk of money.
Speaker 1: And another thing to consider, consider selling some things, maybe
Speaker 1: have in the eBay a night at your house and
Speaker 1: list a bunch of stuff that you don't need anymore
Speaker 1: and that you think is valuable to others. Maybe a
Speaker 1: yard sale on a Saturday in your neighborhood, or a
Speaker 1: side gig for just a few months. Whatever it takes
Speaker 1: really to kind of bolster that and give you a
Speaker 1: little bit of a financial cushion. It's worth it to
Speaker 1: do a little bit of extra work in order to
Speaker 1: kind of create that margin in your life. You know,
Speaker 1: living life where you have no idea what you would
Speaker 1: do if an emergency popped up tomorrow. That's just a
Speaker 1: hard way to live. And so those are just a
Speaker 1: few ideas to kind of help you maybe get started
Speaker 1: and prepare yourself for that potential emergency. Yeah. So the
Speaker 1: reason is good to sort of jump start it, right,
Speaker 1: is that it's just hard work. You can take a
Speaker 1: long time to get even that five thousand dollars set
Speaker 1: up set aside, but even longer, Man, if you're looking
Speaker 1: at three to six months worth of living expenses, that
Speaker 1: really can take a long time. So it's especially helpful
Speaker 1: if you can, like you said, get that sort of infusion. Uh,
Speaker 1: tax refunds great for that. It's not free money, but
Speaker 1: it kind of feels like free money. And if you
Speaker 1: can just take that and apply apply that towards your
Speaker 1: emergency fund anyway to sort of jump start that and
Speaker 1: get the ball rolling to where you can kind of
Speaker 1: pile on top of that. Because even if you're setting
Speaker 1: aside a hundred dollars a week, I mean you're looking
Speaker 1: at a little over bucks for the year. For some folks,
Speaker 1: that's only a month or two worth of living expenses.
Speaker 1: You know, like that's doesn't get you very far, and
Speaker 1: a hundred dollars a week is really tough. So yeah,
Speaker 1: I been able to kind of jump started like that,
Speaker 1: it's gonna be huge. Yeah, I mean I think sometimes
Speaker 1: hearing the financial experts say you need six months of
Speaker 1: an emergency fund, for most folks, they they hear that.
Speaker 1: I think they tune out just because that's that seems
Speaker 1: like an insurmountable goal. It's a huge amount of money
Speaker 1: for a lot of it, it's a tough thing. Like
Speaker 1: for dudes like us that have our financial act together,
Speaker 1: six months just feels like, right, this big daunting thing,
Speaker 1: like how long would it take us, you know, from
Speaker 1: scratch right now to save up six months of our income?
Speaker 1: And and I think a lot of people tune that out.
Speaker 1: And so that's why I want to encourage people just
Speaker 1: to start small, you know, take a step in the
Speaker 1: right direction, start saving five dollars a week, whatever it takes,
Speaker 1: Like figure out how you can do that, what you
Speaker 1: can cut out of your life, make sure that if
Speaker 1: you've spent the one for this year, that you save
Speaker 1: next year's tax refund. Whatever it takes. You want to
Speaker 1: start somewhere, because if you just here that six month
Speaker 1: mark and you say screw that, that's not possible for me,
Speaker 1: and you decide to scrap the emergency fund altogether, well,
Speaker 1: ultimately in the end, that's just gonna cause you more
Speaker 1: stress every month. And when the emergency does come along, dude,
Speaker 1: that's gonna be really hard to stomach. And it's gonna
Speaker 1: hurt you even more in the long run. Yeah, man,
Speaker 1: So let's talk about then, how much to set aside?
Speaker 1: All right, we talked about the three to six months.
Speaker 1: That's sort of a general guideline that we hear a lot.
Speaker 1: I think the biggest thing that people need to do
Speaker 1: is consider their life stage. Somebody that's straight out of college,
Speaker 1: that doesn't have a lot of responsibilities, that doesn't have
Speaker 1: a lot of say assets or things that they need
Speaker 1: to keep up with, chances are they don't need quite
Speaker 1: as much money set aside. Yeah, and let's say they
Speaker 1: can move home with mom and dad at a moment's
Speaker 1: notice if something happens, right, they kind of have a
Speaker 1: fallback plane. Yeah exactly. Something like that means, you know what,
Speaker 1: you can point your money a little more towards your
Speaker 1: fur owing k or investing than straight up just saving
Speaker 1: for a rainy day. And while that's still important to do,
Speaker 1: just because of that specific life stage, you can afford
Speaker 1: for that to be less of a priority. Yeah, there's
Speaker 1: just less pressure on you. Right, Like, you don't and
Speaker 1: if you don't have kids, you don't have a spouse,
Speaker 1: if you don't have a home where where there's things
Speaker 1: that you need to fix or a place. There's just
Speaker 1: less pressure on you financially. And you look at that
Speaker 1: on the other side of the coin, say you're like us.
Speaker 1: You know, we've we've got houses, we've got a family,
Speaker 1: we've got kids, we've got vehicles. There's a lot that
Speaker 1: can break. There's a lot that can you know, go wrong,
Speaker 1: and things that might need to be repaired, like your
Speaker 1: car or a kid's arm exactly, both can break. Both
Speaker 1: of those things will cost money. Uh, when you're spread
Speaker 1: out like that, it's helpful to have I think maybe
Speaker 1: more set aside. Essentially, the more responsibility you have, I
Speaker 1: think you might need to look at maybe considering being
Speaker 1: closer to that six month worth of expenses set aside.
Speaker 1: That's still a lot of money. And you also want
Speaker 1: to consider how much of us like safety net you
Speaker 1: want to sort of create for yourself, because essentially that's
Speaker 1: what this is. You're you're sort of setting this thing
Speaker 1: up in case something were to happen. Ye. I think
Speaker 1: another important consideration is are you a dual income household
Speaker 1: or a single income household? So if you are the
Speaker 1: only worker in your home, there is definitely a higher
Speaker 1: necessity for having an emergency fund. If you're a two
Speaker 1: income household and one of you loses your job and
Speaker 1: you and still pay the basic necessities on that one income,
Speaker 1: curting an emergency fund is still a really good idea,
Speaker 1: but not nearly as as much of a necessity. And
Speaker 1: so another option to consider too is once you essentially
Speaker 1: have like a portfolio built up, and specifically you've been
Speaker 1: contributing to a roth ira, a that's something you can
Speaker 1: draw on. You can withdraw contributions to your roth ira
Speaker 1: without penalty, without paying tax, and that's something that you
Speaker 1: can sort of draw on, like you can of tap
Speaker 1: that in case there's emergencies. So I wouldn't use that
Speaker 1: completely and solely as like your emergency fund, but to
Speaker 1: be able to know that that's sort of there as
Speaker 1: a backup provide some peace of mind as well. I agree,
Speaker 1: if you've been investing in a roth ira up to
Speaker 1: the limit for the last eight, ten, twelve years, and
Speaker 1: you've built up a sizeable amountain there, I think it's
Speaker 1: okay to carry a much smaller emergency fund of let's
Speaker 1: say one month's expenses, because let's say the one month's
Speaker 1: gonna lean. It is lean, but but let's say you
Speaker 1: know something does happen at job loss or you know
Speaker 1: which is probably you know one of them as difficult
Speaker 1: things that can happen or are a huge medical issue.
Speaker 1: If you have six figures in a roth ira A,
Speaker 1: you of course can still only withdraw the money that
Speaker 1: you've contributed over the years. But if you've been maxing
Speaker 1: that out over a decade, that's over fifty dollars that
Speaker 1: you have access to that you can pull out tax
Speaker 1: and penalty free, and that essentially works as a really
Speaker 1: nice emergency fund, and so you can have less of
Speaker 1: your money sitting there in a savings account, earning less
Speaker 1: than two percent and hopefully working for you for the
Speaker 1: long run, especially if you're in a two income household
Speaker 1: and you have substantial investments built up in something like
Speaker 1: a wrath where it is partially liquid. In that way,
Speaker 1: I think it's completely reasonable to have only one month
Speaker 1: of emergency fund in an actual savings account and put
Speaker 1: most of your money there. And so I don't know
Speaker 1: what percentage of our listeners are in a position like that,
Speaker 1: but I think that's something to strive for as well,
Speaker 1: that over time, as your investments built up, as you're
Speaker 1: maxing out a wrath and contributing to your retirement in
Speaker 1: that way that you know what, you don't necessary really
Speaker 1: have to when you're forty five, fifty years old and
Speaker 1: you get this substantial amount and builds up, but you
Speaker 1: still have to have six months of your expenses in
Speaker 1: a savings account. Yeah, that's worth considering, man. My biggest
Speaker 1: concern with that is pulling, like the potential of pulling
Speaker 1: that money out if you need it. Obviously, yes, during
Speaker 1: only during an emergency, but if you pull that out
Speaker 1: during a downturn in the market, you're losing money essentially
Speaker 1: at that point because you're pulling money out of the
Speaker 1: market that instead, if you know where you to leave
Speaker 1: in would turn around and continue growing down the road. Yeah,
Speaker 1: And that's why I think the roth Ira strategy is
Speaker 1: really important to consider only if you are financially stable,
Speaker 1: only if you have your financial ducks in a row.
Speaker 1: If you have been investing in a roth ira up
Speaker 1: to the you know, up to or close to the
Speaker 1: max for at least a decade, to where you've really
Speaker 1: built up a substantial amount of savings in there where
Speaker 1: you would only need to tap a small portion of
Speaker 1: it and then Also it's best suited for people that
Speaker 1: probably live in a dual income household where let's say
Speaker 1: they were to lose one income, they wouldn't need to
Speaker 1: tap the emergency fund right away. So it's this good strategy,
Speaker 1: it's this good reserve to have and to know that's
Speaker 1: there so that you can have more of your money
Speaker 1: working for you as opposed to just in traditional savings
Speaker 1: that isn't earning all that much right now, but you
Speaker 1: certainly don't want to put all your eggs in that
Speaker 1: basket and making sure that it's almost like a secondary emergency,
Speaker 1: right So, so if you are a dual income family,
Speaker 1: will you lose one job, it has to almost be
Speaker 1: another emergency on top of that that forces you to
Speaker 1: tap into that. So that that's where I think the
Speaker 1: roth IRA can come in and you can actually, hopefully
Speaker 1: over the long term, earn more on your emergency fund
Speaker 1: in a RATH. And again that's not an exclusion to
Speaker 1: a savings account with an emergency fund in it, but
Speaker 1: I think at that point, if you've been doing it
Speaker 1: over the long term, you can really consider having a
Speaker 1: smaller amount in a savings account, probably more like one
Speaker 1: to two months of expenses in a savings account as
Speaker 1: opposed to that traditional three to six number that the
Speaker 1: personal finance people throw around. So I'll mission to that.
Speaker 1: Having invested in I guess for that ten year, you're
Speaker 1: also investing at ups and downs in the market, so
Speaker 1: essentially you get a kind of dollar cost average over
Speaker 1: that entire period. So you're not only going in at
Speaker 1: the bottom or only going into the top. It's not
Speaker 1: a huge deal because you're you're averaging out all of
Speaker 1: your investment purchases. And that's something you want to see
Speaker 1: as well, because yeah, if you were just going all
Speaker 1: at once, if if you're even able to with with
Speaker 1: you know, with your wrath, it could be more detrimental
Speaker 1: where you to pull it all out at a single
Speaker 1: point in time. Yeah, I agree, And to say one
Speaker 1: more time, it is an emergency fund, right, so your
Speaker 1: goal is to never tap it, and if you are
Speaker 1: in a strong financial position, a wrath can be a
Speaker 1: great kind of side plans that you don't have to
Speaker 1: have quite as much in just traditional savings. But ultimately
Speaker 1: your goal is to never ever ever tap that money
Speaker 1: and just let it grow tax free for retirement. It's
Speaker 1: this emergency fund that you hope you never have to
Speaker 1: use and you desperately try to never tap a man.
Speaker 1: So those are a lot of the steps on like
Speaker 1: what to do right, so how to basically create your
Speaker 1: emergency fund. A question that kind of comes up often
Speaker 1: is when do I fully fund that emergency fund, Like
Speaker 1: when do I start really setting aside the money and
Speaker 1: rereading that chunk of money. Specifically, do I do that
Speaker 1: before I pay off debt? And the answer to that,
Speaker 1: I think comes down to what kind of debt it is.
Speaker 1: And so if you're looking at something that is a
Speaker 1: higher interest rate, like specifically credit cards, or you know
Speaker 1: something maybe worse like a paid a loan or something
Speaker 1: like that, you wants to pay that off first. So
Speaker 1: let's say you've got ten thousand dollars in your savings
Speaker 1: account and you've got a credit card at a interest rate. Well,
Speaker 1: I don't want to deplete my emergency fund. But here's
Speaker 1: the thing. You put that ten thousand dollars to paying
Speaker 1: off your interest rate debt. Well, if a two thousand
Speaker 1: dollar emergency comes along, well it sucks, but you use
Speaker 1: the credit card that you already had money on, right
Speaker 1: like that you already had a balance on it's just
Speaker 1: too smaller balance at that point. So while you never
Speaker 1: want to have to put money on a credit card
Speaker 1: in case of an emergency, it only makes sense that
Speaker 1: you would eliminate debt that's at an incredibly high rate
Speaker 1: of interest before you really start putting money away in
Speaker 1: your emergency fund. And keep in mind too, that we
Speaker 1: were talking about high interest rate products here. We're not
Speaker 1: talking about your mortgage that has a nice thirty year
Speaker 1: fixed rates, and we're not talking about low interest rate
Speaker 1: car loans. Hopefully you don't have a car loan, but
Speaker 1: if you already do, that's not that's not what we're
Speaker 1: talking about. If you've got something that's in the single digits,
Speaker 1: something that's close to five or six percent, that's not terrible.
Speaker 1: And so you definitely want to pay off balances that
Speaker 1: have rates above that. But otherwise, the emergency fund, that's
Speaker 1: your priority. That's what you want to focus on building up.
Speaker 1: At the very least, like we said earlier, that five
Speaker 1: hundred to a thousand bucks, but ultimately you want to
Speaker 1: consider more than that. You know, you want to consider
Speaker 1: one to three. If you like to be a little
Speaker 1: more conservative, like we're even six months, that might be
Speaker 1: the point I would you feel comfortable. And if that's
Speaker 1: the case, then that's fine, that's great. You're gonna be
Speaker 1: well prepared for for any potential financial hardships that come along.
Speaker 1: Just because you heard us say six months doesn't mean
Speaker 1: that you shouldn't start at all because it seems like
Speaker 1: too big, too lofty of a goal. That's why we're
Speaker 1: kind of trying to show you these tears that exist,
Speaker 1: and you don't have to do it all at once,
Speaker 1: you don't have to do it all with any a
Speaker 1: year's time, but attempt first to get the five and
Speaker 1: then the thousand and then the one month of your
Speaker 1: expense is Just because you can't get to six months
Speaker 1: in a short period of time doesn't mean you shouldn't
Speaker 1: start at all. Yeah, this isn't something that's gonna happen overnight,
Speaker 1: you know. This is something that might take a year
Speaker 1: or even two years to kind of get to the
Speaker 1: point at which you feel comfortable. And again, this is
Speaker 1: personal finance, so this varies from personal person to varies
Speaker 1: from family to family. It's something that you might need
Speaker 1: to talk about with your spouse or your significant other.
Speaker 1: It's gonna vary, and it's just it's up to you
Speaker 1: to decide at what point you feel comfortable. But ultimately
Speaker 1: the major goal is to create some margin in your life.
Speaker 1: There are so many people living on the edge with
Speaker 1: no access to almost any emergency fund at all, and
Speaker 1: the slightest hardship comes along and they don't know what
Speaker 1: to do, And so an emergency fund is really important
Speaker 1: for dealing with those emergencies that pop up, but even
Speaker 1: more than that, for eliminating stress in your life. Having
Speaker 1: a little bit of cash in the bank that's sitting
Speaker 1: there and that you know can help you should something arise. Man,
Speaker 1: that provides a lot of peace of mind. And peace
Speaker 1: of mind isn't really something that money can buy. But
Speaker 1: in this regard when it comes to emergency funds, boy,
Speaker 1: having that small chunk at least that base really can
Speaker 1: alleviate a lot of that financial stress that the majority
Speaker 1: of Americans feel. Okay, Man, beer time, I do like
Speaker 1: this better than the first time I had it, It's
Speaker 1: still not like my favorite. I think, if I'm going
Speaker 1: to have a Belgian like this, I either want it
Speaker 1: kind of nice and white, just real clean and fresh
Speaker 1: without the the sort of the fruit flavor's attitude or
Speaker 1: like the curio like we had last week. If it's
Speaker 1: barrel aged, where it adds like a layer of richness
Speaker 1: and complexity to it, I think I'm more into that.
Speaker 1: I was hoping I could convert you today to loving
Speaker 1: this beer as much as I do. But you know what,
Speaker 1: it wasn't in the cards. Yeah, I mean, I'm not
Speaker 1: knocking this at all. I do like this beer. I
Speaker 1: will drink this one percent at the beach. You know.
Speaker 1: It's it's that kind of beer, just not my kind
Speaker 1: of like my every day go to I feel you well.
Speaker 1: Lilliquois Cupolo from Avery Brewing Company. Apparently there are mixed
Speaker 1: reviews on Poor Poor All right, man, let's wrap this up.
Speaker 1: Let's do a quick recap. The biggest reason why an
Speaker 1: emergency fund is necessary is because we have very little
Speaker 1: financial margin in our lives. Most people live paycheck to paycheck,
Speaker 1: and when that's the case, literally, once that paycheck stops,
Speaker 1: you have an entire month of expenses coming up that
Speaker 1: you are not prepared for. Yeah, so you might need
Speaker 1: to start small. Saving up just five hundred or a
Speaker 1: thousand dollars in the beginning can really help alleviate some
Speaker 1: of that pressure. Don't let that three to six month
Speaker 1: figure throw you and keep you from starting an emergency
Speaker 1: fund at all. Even though that's a good goal to
Speaker 1: have over the long term, know that it takes time. Yeah,
Speaker 1: It's important to keep in mind is that this is
Speaker 1: a personal decision, right, It's going to vary from person
Speaker 1: to person, and it just depends on what dollar amount
Speaker 1: you feel comfortable having in the bank sitting there ready
Speaker 1: to go where there to be an emergency. Yeah, So
Speaker 1: the biggest thing is to make sure that you don't
Speaker 1: have it with one of the big banks. We're talking
Speaker 1: specifically about Wells Fargo, Bank of America, Chase, the guys
Speaker 1: that don't pay anything. That's not where you want your
Speaker 1: emergency fund. Hopefully, it's a big chunk of money that
Speaker 1: you're setting aside over time, and you want it actually
Speaker 1: to be earning something for you. And at the big
Speaker 1: banks it's point zero one percent interest insane, which is
Speaker 1: pennies every month. Yeah, the banks that we use currently
Speaker 1: we're earning close to two percent, you know these days,
Speaker 1: which is awesome. All right, Matt. That's it for emergency funds.
Speaker 1: Our home on the web is how to Money dot Com.
Speaker 1: As always will have show notes up there for you
Speaker 1: for this episode. Cheers, Buddy, yeah Man, best Friends out,
Speaker 1: best Friends Out, m