Money Rehab with Nicole Lapin - How To Find Free Money for Your “Oh Sh*t” Fund

Episode Date: February 13, 2023

Nicole used to have to explain to people why they needed an emergency fund; but after the pandemic and recent natural disasters... we get it. But even though most people know they need an emergency fund, there are still some question marks around how much they need, or the best way to save. Nicole explains all. Plus, she teaches you how to find free money.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. I used to have to explain to people why they needed an emergency fund. But honestly, after the pandemic and recent natural disasters, I don't really have to sell people on this idea anymore.

Most people know they need an emergency fund. But what they don't know is how much they need in there or the best way to save it up. So let's start with how much and move on to my five tips for how to save for a rainy, fiery, or windy day. So long story short, you need at least three months of savings in the bank. And that three months is if you have a stable job that's easy to replace. You're a doctor. That's great. You can find another job quickly. But it's also true if you're an electrician or an elementary school teacher. But what about if you're a wedding photographer or a landscaper? You may have plenty of work today, but if there's a major disruption like a pandemic,

you might have a difficult time relocating or finding more work. You probably want, in that case, more like six months worth of wages tucked away. And if you do something super specialized, like sell speed boats or design custom wine cellars, you may want an entire year's worth of income tucked away in case of emergency. And that's funding for everything. Feeding yourself, taking care of your pets and kids, rent or mortgage payments, or paying the minimum payments or obligations on things like student loans. So find that number and then reverse engineer. Here are five tips for building up that nest egg. Number one, what's the best way to start your emergency fund? With free money, of course. Right now, savings accounts are earning more in interest than they have for years. What's the best way to start your emergency fund? With free money, of course.

Right now, savings accounts are earning more in interest than they have for years. But banks are always competing for your business. So, especially if you're starting off with a couple grand, let's say, you can look for banks offering bonuses for opening accounts with them. Generally, these are in the $100 to $200 range, which doesn't sound like a lot, but could easily be a trip to the grocery store or gas for your car or generator. A high-yield savings account is generally the best place to keep your emergency savings fund. Some people even like to keep it in a different bank so that they aren't tempted to dip into it easily.

And if that's the kind of scaffolding you need, then great and good on you for recognizing it. And there can also be other savings vehicles that can work as well for an emergency fund. That brings us to number two. Look into a health savings account. A health savings account, or HSA, is a savings account that people with high deductible health plans can open and use to save pre-tax income. There are some limitations with these accounts, though. For example, in 2022, an individual could only contribute $3,650, and for families, the annual limit was $7,300. But one big thing there isn't a rule about. When you reimburse yourself for medical expenses, there is no time limit. Yeah, let me repeat that again. As long as you have the receipt, you can take that money out whenever the hell you feel like it. Open an account at 25 and

break your arm at 30. You can wait till you're 60 to pay yourself out. This means if you're good at keeping records, you can use your HSA as an emergency fund. It's not like it's hard to run a medical bills. One baby on a high deductible health care plan can easily cost you 5k. And that's if you're lucky. Two of those and you could have 10k in receipts, no problem. If you keep your medical receipts, you can use your HSA as an emergency fund for life. Number three, diversify your emergency fund. Right now, most high-yield savings accounts are paying more than 3%. But what if you're interested in a little more?

Of course you are. You can put some of that money into one-year bonds or one-year CDs. One-year treasury notes and one-year CDs are earning about 4.6% right now. Obviously, you don't wanna stick your entire emergency fund in at one time because that would totally defeat the purpose by locking it up for a year. Rather, you'd wanna have this be a rolling investment.

So you put in a month at a time every month for a year so that one is maturing every month or so. If you don't need the money, like you didn't have an emergency, yay! Reinvest it and continue to let it compound interest. Number four, stash some cash. Actual cash. While you want most of your fund in a savings account, you might also want to keep some in cash or a preloaded credit card. In a situation like a blackout, stores might be unable to take credit cards, so having cash on hand will be the only way to get, say, clean water or fill up your tank. However, you may not want to be carrying around large amounts of cash.

Cash is, of course, risky. If you keep $1,000 under your mattress and your house burns down, you're out $1,000. If you have $1,000 on a preloaded card and your house burns down, you can call the credit card company and get them to send you a new card, making it safer to keep a little extra emergency money on hand. Number five. Set it and hopefully forget it. Not to get too woo-woo on you, but this is more of a mindset thing. Remember, this is a set amount of money. You don't need to be saving forever.

Figure out how much money you need your safety net to be, and when you hit that point, you can stop saving and start investing more. This is a goal that you can set, achieve, and then kind of forget about. And if you're lucky, forget about it forever, other than checking in on it from time to time as circumstances change to make sure you have enough money to cover your fund. For today's tip, you can take straight to the bank.

When thinking about planning for the worst, consider buying disability insurance if your job doesn't provide it for you already with their policy. These policies come in both short and long-term versions and they pay a percentage of your income if you're unable to work. ready with their policy. These policies come in both short and long term versions, and they pay a percentage of your income if you're unable to work.

They don't just cover catastrophic illness. The number one reason that people use their short term disability insurance, maternity leave. So even in non-emergency, this can be a great resource to have in your back pocket. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money

questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.