George Kamel - Emergency Funds 101: You’re Screwed if You Don’t Have One

Episode Date: December 1, 2023

This episode, learn everything you need to know about emergency funds—aka the financial cushion between you and life.   Links:  Preorder George Kamel’s new book, Breaking Free From Broke, and get more than $100 in FREE bonus items. The worst (and best) places to keep your emergency fund EveryDollar budget deal: I love a good deal, and when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar. Learn more about your ad choices. Visit megaphone.fm/adchoices

Back when I was broke, every emergency was a full-blown crisis. If I cracked a tooth on our Nature Valley bar, if the AC went out mid-July, or if my car started making humpback whale sounds, I was in trouble because I had no financial cushion between me and life. It's like when you get in trouble in youth group because you failed to leave room for Jesus. Just traumatic in different ways. Leave room for Jesus. But when I decided to get control of my money, one of the first things I did was build an emergency fund for when the unexpected happens. And now I get a lot of questions from you guys about emergency funds.

How much should you save? Where should you keep it? And what even qualifies as an emergency. The Taylor Swift-1989 re-release on vinyl? Not an emergency. But I will be buying it with no shame. Georgia's version. So today, we're going to go over what you need to know when it comes to protecting yourself with an emergency fund.

But first... Emergency. This is not a drill. Like, subscribe. And share immediately. Emergency. This is not a drill. Like, subscribe.

and sure immediately. You heard the man. Do what he says. All right, I'm sure you're all aware of Murphy's law. Anything that can go wrong will go wrong. And don't forget about his brother Cole, known for Cole's law. Kohl's law? You know what?

Not a fan of either. You see, if you don't have an emergency fund, Murphy is going to move in with you full time, watch Narcos in the back room, and finish off your leftover pizza faster than you can say cauliflower cheese stuff crust. That's why you need to have money in the bank to cover emergencies. Otherwise, you're going to turn to credit cards,

borrow from your 401K, take out a he lock, or any other dumb things that will keep you stuck in debt and prevent you from getting ahead with money. Now, before we go on, a little PSA here. If you have consumer debt, your focus shouldn't be piling up a huge emergency fund yet. Your focus should be on getting out of debt like your life depends on it. So if that's you, the first thing you should do right now, after liking and subscribing, obviously, is to save up a $1,000 starter emergency fund. For some of you, saving $1,000 may feel impossible.

Maybe you've never even had that much money in your bank account at one time. But I promise, if you're intentional with your budget, sell some stuff, do some side hustles, cancel some subscriptions, you could have that $1,000 in under a month. Now, for the rest of you, you're thinking $1,000, that's nowhere near enough for an emergency fund. To which I say, I know. That's why I said starter. It's not supposed to be enough. It's just supposed to keep you afloat while you put the rest of your time, energy, resources, and money toward getting out of debt.

And I want to see some intensity here. I want to see some passion. I want you coming in like a wrecking ball, people. More passion. More passion. More energy. Then once the debt's gone, you graduate from a starter to a big boy fully funded emergency fund. I'm talking three to six months of expenses saved,

which should be enough to protect you from falling back into the debt cycle when emergencies do happen. But just how much is three to six months of expenses? Well, start by looking at your bank account and budget to see what it takes to operate your household for a given month. And you're going to want to account

for a bit more than the minimum food, utilities, housing, and transportation. But maybe we don't include all the luxuries like Fridays at Applebee's or your weekly bassoon lessons. That way, if you lose your job because your undocumented evil twin shows up, locks you in the trunk of your car and starts vandalizing your office supply room after pretending to be you, you can live off your emergency fund for a couple of months. Very specific reference, but it could happen. I'm just saying. Boo. You'll just want to get on a bare bones budget that just covers the essentials. So you can pay your bills, put food on the table, and fill up the gas.

Now, once you know how much it takes to operate your household for one month, let's say for your family, that's $5,000, multiply it by three or six to get an idea of how much you should save. So in this case, that would be around $15,000 or $30,000. Yeah, I mastered my multiplication tables in fourth grade. Nine times seven? 63. Edit the breakout later, guys. Thank you.

No, I don't think I will. Quick side note, I cover how to save up this amount and more in Chapter 12 on my new book, breaking free from broke. If you want to check that out, I'll drop a link below so you can pre-order and get a whole bunch of goodies when you do so. Next question. How do you know if you should save up three months

or six months of expenses? Great question, Farouk. Thank you for that. Love when you throw those fastballs. So here's my rule of thumb. Save six months of expenses if you fall into any of these categories. You're married with one income, you're a single parent,

you're self-employed, you have a regular income like commission or seasonal jobs, or you or someone in your home has chronic health issues. Save at least three months of expenses if you fall into either of these categories. You're single with no dependence and a stable income, or you're married with two stable incomes. So let's get tactical. If you're a single fireman with no dependence, three months is fine. And also, if you're a single fireman with no dependents, comment below on this video.

I've got a friend you'd be great with. And if you're a stay-at-home parent whose spouse recently quit their corporate job to be their own boss and sell supplements through a commission-based business model, you'll want to have six months. And you also might want to investigate further. This has Lula Rich written all over it. But really, three or six months, you get to decide. Just make sure it will give you security, and if you're married, make sure you agree on that number.

You can fight about Ted Lassos series finale. You can fight about pizza toppings, but for this one, be of one accord. Now, you don't need to have a year of your salary in an emergency fund. That's overkill. So just have a heart-to-heart with your prepper husband, show him this video, tell him six-month savings is fine, and while you're at it,

Ask him to reflect on the number of canned beans stashed in the coat closet. There are pintoes in the p-coat. It has gone too far, Brad. Which brings us to where you should be keeping your emergency fund. Some ideas include, under your doormat, in your glove compartment, inside the cookie jar. But if those ideas feel unsafe to you, I agree. Don't do that. There are other options I personally prefer, like a simple savings account connected to your checking account,

a money market account that comes with a debit card or checkwriting privileges, and my personal favorite, an online high-yield safe. account that pays a higher interest rate while still giving you easy access to your money when you need it. P.S. I did a whole video on the worst place to store your savings in the best places, and I will link that below if you want to watch it. The main point to remember here is to make sure your emergency fund is liquid, which is why your glove compartment wouldn't be an ideal place to keep it. That's a sticky mess waiting to happen. Hashtag gross. Now by liquid, here's what I actually mean. It means you can get to it

easily and quickly. Even if your money can earn more interest if it were invested, earning interest is not the point of an emergency fund. This emergency fund is insurance, not an investment. The point is to be able to pay that doctor or mechanic quickly with zero hassle and zero headaches. On the flip side, you don't want the money so easy to get to that you're dipping into it for every little reason. So that's why I love a high-yield savings account. It's not attached to checking, and you can typically access your money faster than Amazon Prime can mail you a mullet wig. Oh, never mind. They'll have it to me by 4 a.m. I take it back. Dang, they're good with that overnight delivery. Next question. How do you know when it's really time to tap into your emergency fund?

Well, start by looking at your budget. Ask yourself, can you simply adjust the budget this month to cover the expense? You know, wait until next month to take the family shoe shopping or postpone the trip to Branson or just cancel it all together. No shade to Branson, but it's basically great value Vegas fried and butter. I said what I said. He's not wrong. You see, skipping some extras for a few weeks to avoid dipping into savings is totally worth it. Because remember, once you spend from the emergency fund, you have to rebuild the emergency fund really quickly. And if you've done the math and moving things around in this month's budget isn't going to cut it, ask yourself these three questions. Is it unexpected? Is it necessary? And is it urgent? If you can answer yes to all three of those, you've got a real emergency on your hands and a real need to use the emergency fund. And use common sense here. Even if it feels like it, your friend's last minute bachelor trip to Pensacola Beach is not an emergency.

And I know you don't want to miss the dolphin crews, but there'll be another one. You don't know that. You don't know that. And when it comes to actually building your fully funded emergency fund, it's easy to get discouraged because there's no immediate reward. I mean, truthfully, saving isn't as much fun as the other things you can do with money, like spend it or give it. But if you put your mind to it, most people can knock out this step in six months or less.

Plus, it's a huge financial and emotional step. Because, funny enough, when you have an emergency fund, you sort of quit having financial emergencies. They simply turn into inconveniences. You see, when you're broke, you never seem to have good luck. And when you're not broke, you seem to have more good luck. But really, it's not luck. You've just set yourself up to be in a better position to afford higher quality items,

do the right maintenance, and have margin. The real key to this whole emergency fund thing is you have to make it a priority. I mean, if your fantasy team, Sherlock Mahomes, matters more to you than financial security, you're never going to have it. So get your mind right and get this in place ASAP. Then when you have that extra padding, you'll have a true taste, a financial piece. Kind of a warm, bold flavor with hints of freedom and vibrant notes of cash flowed vacations. That's nice.

That's a 10. Plus, there will be no reason to keep around debt or credit cards anymore because you're funding yourself. That's right, I said it. Go fund yourself. Mom, if you're watching, I didn't actually cuss. Okay, don't call me. I'm upset. Now, if you don't have an emergency fund yet or you're realizing right now that yours isn't big enough,

it's time to start saving. And making a budget is the first step to get there. Now, I personally use the every dollar budgeting app because it makes it super easy to see where your money's going and make a plan. Plus, on average, first time every dollar budgeters immediately find an extra $332 bucks in their budget and cut their monthly expenses by 9%.

With that, you'll be building your emergency fund in no time. So if you want to check out every dollar, I will link it below. Oh, and I'd love to know in the comments what your last emergency was and how much it cost you. And more importantly, did you have the savings to cover it? As always, share this video with a friend who needs to re-examine their definition of emergency. Farouk, the Joe Bros tour is not an emergency. Don't make me say it a third time.

Plus, Joe's kind of phoning it in on stage, man. He's going through a lot. Let's wait till the next tour. Thanks for watching. We'll see you next time.