Why and How to Start an Emergency Fund

by Brett & Kate McKay on March 23, 2011 · 74 comments

in Money & Career

Why do you need an emergency fund?

Because sh** happens and it can be expensive.

Kids end up in the emergency room; your car goes kaput in the middle of New Mexico; your water heater springs a leak. We’ve all experienced these setbacks and their accompanying bills. Some of us have suffered the misfortune of getting laid off and being without a source of income for months. Many people don’t plan for emergencies in their monthly budget, so when the poop hits the fan, they’re forced to take on expensive credit card debt to cover the bills.

An emergency fund is insurance for you and your family. Having cash on hand to cover unexpected expenses has two big benefits. First, it gives you peace of mind. Instead of wringing your hands worrying about where you’re going to come up with the money to cover an emergency expense, you simply transfer money from your emergency fund to your checking account. Crisis averted.

Second, and more importantly,  it helps you get ahead financially. Instead of taking on more debt by using your credit card for emergencies, an emergency savings fund will prevent you from digging yourself deeper into a hole.

An added benefit of an emergency fund is the feeling of pride that self-sufficiency gives a man. You can’t beat it.

Where to Stash Your Emergency Fund

Your emergency fund should be liquid and easily accessible. While it may be tempting to get a higher interest rate by putting your money in a CD or mutual fund, those savings devices make getting to your money difficult when you need it most. Instead, opt for a boring old savings or checking account with a local or online bank.

Local banks. Local banks are great places to stash your emergency fund because you probably already do business with them. Just visit a branch and ask to open a separate savings account for your emergency fund. Depositing money into your account is easy because you can do the transaction in person. Ensure that your savings account is connected with a checking account, so you can easily transfer emergency money to your checking account when you need to spend it. The downside with brick and mortar banks is that the interest rate isn’t that great, but this isn’t a big deal because we’re not trying to get rich on the interest from our emergency fund.

Online banks. Online banks are a great place to keep your emergency fund because they typically have higher interest rates and lower costs and fees than the brick and mortar variety. A few years ago online banks like ING Direct and Ally had crazy monthly interest rates between 2%-4%, but they’ve since gone down to about 0.8-1%. Not fantastic, but still better than most traditional banks.

I keep our emergency fund in a checking account with ING Direct. The free debit card makes the money easy to get to when I need it.

The biggest drawback with online banking is the inconvenience. You can’t go into a branch to deposit money; to fund your online account, you have to connect it to a traditional bank. And if you don’t have a debit card for your online account, getting to your money can be difficult. You’ll have to request a transfer from your online account to your traditional account and wait three to four business days for the transaction to clear.

Personally, I find this inconvenience a helpful firewall that ensures I don’t cheat and dip into my emergency fund for things that aren’t really emergencies. But just do what works for you.

Should I keep some cash under the mattress? It’s not a bad idea to keep part of your emergency fund hidden somewhere in your house. Natural disasters and zombie apocalypses can knock out banks and ATM machines for days and even weeks, cutting you off from your money. $300-$400 in cash is a good amount to have on hand. Hide it in your mattress, store it in a fireproof safe, or even keep it in your bug out bag.  For style points, keep your emergency cash in a secret book safe.

How Much Do I Need in My Emergency Fund?

When Kate and I were working on paying off our debt, we followed Dave Ramsey’s Total Money Makeover. I know Dave has his critics, but his plan worked for us. Dave believes you should create a $1,000 emergency fund before you start working on paying off your debt. That way, you can use this small cushion for emergency expenses, instead of adding to your debt by using your credit card.

After paying off your debt, you begin building an emergency fund with enough money to cover three to six months of basic living expenses. We’re talking the bare necessities here. That’s about $5,000-$25,000 for most folks. This fund is designed to cover most big emergencies and provide enough money to live on in case you lose your job.

Emergency Fund Goal #1: $1,000 Fast!

Our $1,000 emergency fund came in handy several times during our debt repayment process. When I was in law school we had a few emergency car repairs that came up. We also had to make a couple of unexpected visits to the hospital. Instead of having to use credit cards, we were able to pay for these expenses with cash from our emergency fund. No new debt!

The goal is to get this $1,000 emergency account funded as quickly as possible. You also want to ensure that your account constantly has $1,000 in it, so whenever you use funds from your emergency account, you’ll want to replenish your fund as soon as possible.

“Alright,” you might be thinking, “This sounds good in theory, but how am I going to scrape together $1K when I’m barely making ends meet as it is?”

I know pulling together $1,000 can seem daunting. I’ve been there. We built our emergency fund when I was in law school. Kate and I were both working part-time, but we were barely getting by. Despite that, we were able to fund our $1,000 emergency stash in just two months. The key to creating a $1,000 emergency fund in a short amount of time is 1) increasing your income quickly and 2) cutting big expenses. In short, hustle and sacrifice.

There are a myriad of ways to cut expenses and increase your income. Listing them all would be a post in and of itself. So here are a few ways that helped Kate and I build our $1,000 emergency fund. I’d love to read what worked for you.

1. Have a yard sale. Taking part in a garage sale went a long way in helping us quickly reach our $1,000 goal. We piggybacked on a yard sale Kate’s parents were having and gathered together all the crap we hadn’t used for months and the things people had given us when we got married that we’d never used, and sold it. At the end of the day, we netted about $250, and it went right into our emergency fund savings account. The other added bonus was our place was cleaner and tidier without the extra clutter lying around.

2. Sell your old DVDs, books, and video games on Amazon.com. I’m a book hound. I love reading books. When I was in high school and college, I would often go to the bookstore once a week to browse and buy a new book. Consequently, I had amassed quite a collection of them. So I signed up as a seller on Amazon.com and put up all my old books on the site that I knew I would never read again.

It’s amazing how fast those books went. Of course, selling on Amazon or eBay can be a pain. I spent many of my weekends packaging books and standing in the line at the post office, but the time commitment paid off.  I earned about $100 from my Amazon.com sales blitz.

When Kate and I got serious about paying off our debt, I curbed my book-buying habit significantly and became a zealous patron of the library (I freaking love the library).

3. Cut the cable. Cable TV is expensive, and let’s be honest, most of the shows on there are crap. Cutting cable from your budget can easily give you an additional $20-$100 a month depending on how much you’re spending on your plan. And if you’re really desperate to watch some of your favorite tv shows, check out Hulu.com. You can watch many shows on there for free.

4. Get a second job/work odd jobs. I’m sure you’re a busy man. You probably already have a job and a family. Or maybe you’re going to school full-time and working a part-time job as well. But if you’re serious about getting your financial house in order, you’ll be willing to make the sacrifices necessary to reach your goal.

Don’t be picky about the kind of second jobs or odd work you take on. Personally, I’m of the opinion that no work is beneath you so long as it’s ethical and you give it your best. There are lots of flexible jobs you can work on the weekends or in the evenings. Deliver pizzas, bartend, wait tables, mow lawns, retail.

I have one friend who was doing the Dave Ramsey plan and wanted to fund his $1K emergency fund ASAP. So he bought some numbered stencils and some black and white spray paint, and knocked doors all weekend seeing if anybody wanted their address painted or repainted on the curb. He charged $10 for his services. In one weekend he made $400 and in one month he had his $1,000. This guy knows how to hustle.

5. Stay in on the weekends. For Kate and I, an average Friday night out could cost $20-$50. By limiting ourselves to just one night out a month, we were able to contribute $100 more a month to our fund. We just had to be a bit more creative with what we did on the weekends.

6. Shop for a better auto insurance rate. You’ve seen the commercials on TV claiming you can save a boat load of money by switching auto insurance plans. Take them up on their claim. Visit Progressive, State Farm, GeicoAmerican Family, and esurance to see if you can save a $100 or more by switching to them.

If you like your auto insurance and don’t want to switch, give your insurance company a call to see if they have any safe driving or customer loyalty discounts. You also might ask if you can reduce your rate by paying a lump sum once or twice a year instead of paying every month. Kate and I saved about $100 making that switch.

7. If you’re married, share a car. This is something Kate I have done since we got hitched and still do today. Having only one car saves you big money on car insurance payments, oil changes, and other auto repairs and expenses.  Sure, it can be inconvenient sometimes, but it’s also a good way to spend quality time together. Really! Those car rides to and from law school were the few times Kate and I had to just talk each day.

8. Collect and gather your loose change. I was surprised how much money we were able to add to our emergency fund simply by gathering all our loose change around the house and in the car. Sure, you’re not going to fully fund your $1K with just loose change, but I bet you can collect about $20-$40 in change in a month. Every little bit helps!

Emergency Fund Goal #2: 3-6 Months of Basic Living Expenses

An emergency fund with three to six months of living expenses socked away can seem like a hefty goal.  If you’ve never had more than $1,000 in your bank account, saving $5,000 to $25,000 may seem downright impossible.

Don’t let the enormity of the goal overwhelm you. Small steps will eventually get you there. Imagine the feeling of supreme, manly confidence you’ll enjoy knowing you have enough money to weather the storms of life.

Where you keep your emergency fund shouldn’t change even though you’ll have more stashed away. We still want these funds to be liquid and easily accessible.

Kate and I are working on this goal right now. It will be awhile before we reach it, but we’ll get there. Two things that are helping us reach our goal:

1. Take what you were paying in debt each month and put it in your emergency fund. As soon as Kate and I paid off our debt, we started taking the money we had been paying each month towards debt reduction and putting it in our emergency fund. We’re already used to allocating this money in our budget, so it’s been easy to redirect it towards this new goal.

2. Make savings automatic. I don’t think much about funding my emergency fund because I’ve put our savings on auto-pilot. With the ING Direct automatic savings plan, I’m able to automatically transfer a set amount of money from my primary checking account to my emergency fund every month.

Have you or are you working towards creating an emergency fund? Share your tips on how you’re getting to this goal!

{ 74 comments… read them below or add one }

1 Christine the Soccer Mom March 23, 2011 at 1:41 pm

Our family has been doing the Total Money Makeover, too, and we just finished our 6-month emergency fund. I cannot tell you how good it feels to know it’s there!

I have to say, when we started, I never read past that part of the book, though, because I never imagined it would be possible to save so much money. Seemed impossible. But it happened, and now we’re on to the next step. (That, and we’re taking our kids to Disney this Fall as a reward for sticking things out!)

2 Zach March 23, 2011 at 1:52 pm

Another great place to keep some cold, hard cash in your home is the fridge. Even after a massive fire, contents in the fridge are usually fine. If you’re worried about a nosy houseguest swiping your cash while they grab a soda, stuff it in the baking soda, nobody’s gonna steal that stuff.

3 Eric Granata March 23, 2011 at 2:05 pm

Hannah and I are in the midst of our second FPU class (sometimes you have to do it twice) and it is changing our lives. This time around my dad is paying for and hosting the class for his kids and their spouses, a very noble and life altering act.

We’re not to the 3-6 month part yet, but I can tell you, even having that $1,000 cushion does a lot for your nerves.

4 Kristopher Tryon March 23, 2011 at 2:17 pm

I’ll tell you one thing, until my wife and I committed to the $1000 emergency fund, we were getting NO WHERE financially. That first step alone will change your life.

5 Tom Meitner March 23, 2011 at 2:17 pm

My wife and I went through FPU while we were engaged, and it was some of the most valuable pre-marriage counseling we received! That $1,000 in the bank has saved us from having to use credit cards in several dicey situations, and once you have it in there, it’s not hard to keep it there. It’s all about priorities.

6 Nathan March 23, 2011 at 2:19 pm

My company recently divested our division to another company. Through incentive bonuses from this sale and careful personal saving, I can vouch that hitting the 6-month savings goal is an amazing feeling. It’s amazing how much financial confidence I have now. I no longer go from paycheck to paycheck and worry about life’s curve balls,

For me, having a large, round sum of money in the bank is a deterrent to spending it. I’m very careful to avoid dipping into my emergency fund since I frankly don’t want to see the balance go below the goal I set long ago and reached. Now, I can spend and save my money according to my other life goals.

Just figure out what the number is for you and hustle to it!

7 Anthony March 23, 2011 at 2:54 pm

When my wife and I first got married, we had a single savings account. We funded it often though probably not regularly. The problem with that setup is that you see a big pile of money sitting there and use it to go buy a new TV or whatever, but then what happens if next month the car breaks down and the hot water heat stops working?

Now we have multiple savings accounts, all but one set up to fund automatically every month: emergency, car fund, insurance, travel, and general. We’re still paying off student loans so the 3-6 months of living expenses is just a dream, but we keep $2,000 in emergency money (stored in a local savings account so it can be instantly transferred to our checking), a car payment into the car fund savings account (at Ally), our yearly insurance bill/12 into the insurance fund, $100 to travel, and whatever is left over goes to general (that’s the one that doesn’t fund automatically). Two downsides: lots of accounts to manage but since it’s all automatic that doesn’t matter (and we can’t “accidentally” spend the insurance money on travel), and the other is that if we’ve used some of our emergency fund then the general fund stops growing until the emergency is filled up again. But putting off the new TV is a lot less worrisome then charging a new water heater.

We also set aside money for Christmas gifts (and birthdays), but we take that out in cash. Mostly because it’s a relatively small amount/month ($40) and because it works as a true cash reserve for if the ATMs stop working.

So all the accounts have specific purposes, but they all help out if necessary. When my car unexpectedly needed a new engine (went in for an oil change, came out with a new engine), we took that from the car fund because it was more than the actual emergency fund could handle. It just meant we had to put off the next car replacement by an extra year. Being able to handle a major problem like that without getting the sick feeling in the stomach really validated the idea of emergency savings for me.

8 Gentleman's Black Book March 23, 2011 at 2:56 pm

I think an easy approach to saving the amount desired is to have an automatic transaction between accounts on pay day, so that when you look at your pay, you don’t have to worry about keeping any money in there because it’s already been moved to your savings.

Seeing a lot of money in your account can be incredibly motivating to save further as well.


9 Carter March 23, 2011 at 3:11 pm

Mint . com has been a big help to me. The free online finance tool pulls all your transaction from all your accounts to give you a single shot of your finances all in one place. It also help you set budgets and saving goals and even finds better financial deals for you based on fees you are currently paying. Once you see where your money is going, you can make the changes needed to save.

Capital one actually has a pretty good online savings offering right now, I’m getting over 1%.

I agree with others above, just getting started with the $1K will encourage you to save more and make other changes.

I’m about to get married, any advice on how to get your wife more on board with saving?

10 Rachel March 23, 2011 at 3:19 pm

I too can vouch for how much that $1000 emergency fund helps as a first step. Before I accomplished that goal, I’d always lived paycheque to paycheque, and the thought of saving that much money seemed daunting. When I reached that goal (and quickly!) however, I realized that I hadn’t really missed the money in my day to day life, and suddenly saving seemed exciting. My partner and I now put about 40% of our income into an ING savings account each month, even though we only make slightly over minimum wage. By getting organized, we managed to free up an amazing amount of money and stop the paycheque to paycheque lifestyle, without any increase in overall income. We now have our consumer debt paid off (and are well on our way to paying off student debt) and we’re on track to have $20000 in the bank by the end of next year. It’s such an amazing feeling!

11 CW Cook March 23, 2011 at 3:23 pm

There were days that I literally went to bed hungry. I made plenty of money to pay for my living expenses but it seemed that I never had enough money at the end of the week; let alone the end of the month.
I found that if you don’t watch your money, you better believe someone else is.That’s why marketing is so important and lucrative for many companies.
After working Dave Ramsey’s plan I am debt free, and having an emergency fund has taken so much stress out of my life. I made up my mind a few years back that I’d never go to bed hungry again, and thanks to my emergency fund, I haven’t.
Great advice.

12 Craig Aznoe March 23, 2011 at 3:30 pm

I’ve hardly ever been in debt, raced to get out of it, but I was getting nowhere financially because I’d spend everything that was automatically put into 401k plans.

After taking the class, I’ve realized how lucky I’ve been not to have any major emergencies that would have meant financial disaster for me. Now I’m heading towards my 6 month emergency fund, and thankful that I’ve been so lucky so far.

A GREAT tool I’ve been using (along with Mint . com as suggested above) is SmartyPig . com. It’s a bank with high interest rates comparable to ING Direct. Instead of having a single numbered savings account, you can break your account into goals, i.e. Insurance Payments, Vacation Savings, House Downpayment, etc. Funds can be automatically transferred just like ING, and progress towards your goals are shown in percentages. It provides great visual reinforcement for your savings plans, and it’s really been great for my financial planning.

Best thing – Both smartypig and mint have iPhone apps, so you can track your progress whenever you want.

Those tools with the Dave Ramsey class have been (financially) life changing. I’d recommend them to anyone looking to get their financial life back on track. (or started)

13 Kevin March 23, 2011 at 3:43 pm

6 months of savings is my big goal, and I’ve never even heard of whatever program you were talking about :)

Psychologically, its important to to phrase it “6 months of savings”.
This puts pressure on you to save, and to keep it there. This is your emergency fund, and it will eventually become your retirement fund, or your fund you use to start a (manly?) new business. If you have a fair chunk of change in the bank (say $20k) and manage it well, you’ll soon find that you make money for “doing nothing” off of investments and other instruments.

The other cool thing about thinking “6 months of savings” is that it puts pressure on you to both save AND reduce monthly expenses! If you spend $4k/month, you need $24k to reach your 6 month savings goal. But if you reduce your spending to $3k/month, not only does your 6 month savings goal go down to $18k, but you can put that extra $1k/month towards your goal, and reach your smaller goal EVEN FASTER.

A penny saved is a penny earned.

14 Brady March 23, 2011 at 4:29 pm

If you have a direct deposit with your employer it is easy to save that little extra each paycheck. My wife started a small savings account with her hometown credit union back when she was a kid and it was still open when we were married. It didn’t have much in it, maybe $50. We had my employer do a direct deposit of $50 a paycheck to that savings account. But, here is the key, we do not have a checking account with them. if we want to access any money we have to call them and they will send us a check. That keeps us from using it for any impulse buying, if we need the money we need to make a decision and then wait a day or two for the snail mail to come along. We have used it for an emergency account and even a Christmas fund. It is out of sight and out of mind and the money starts to add up quickly. The key to this is 1) Direct deposit 2) No quick access.
Another money management rule we have is that if we find something we want and it costs over $100 we wait till the next day to get it. It has been amazing how unimportant things seem the next day after you have slept on the idea.

15 Shafnitz March 23, 2011 at 4:48 pm

Haven’t seen anyone mention this one yet: If you’re employer offers it, use a flex-spending plan. This takes the worry out of paying for emergency medical expenses. You choose an amount for the year. At the beginning of the year, the full amount will be available to you. You get a debit card for the account that can only be used for medical expenses. You’ll fund the account with automatic deductions of pre-tax money from your paycheck.
The tricky part is estimating how much you’ll be needing for the year, but by going over previous years’ expenses, you can get pretty close. Ours will even allow you to change the amount mid-year for qualifying life changes, such as pregnancy.
Some employers also offer the same thing for daycare expenses.

16 Native Son March 23, 2011 at 5:22 pm

Agree wholeheartedly. I’ve the Emergency Fund already on autopilot, and I use one other savings account as a combined accrual account for all the insurances, car registrations, property tax bills, and the annual deductable on the medical insurance. The previous comment is similar, but I don’t see the need to have to manage multiple accrual accounts for each recurring annual or semi-annual bill. Our simple rule is that if money is in the “Accrual Account”, it doesn’t come out until one of those bills arrives in the mail.

17 Jack Scott March 23, 2011 at 5:33 pm

I’ve got $2000 socked away in a high-interest (4.75%) savings account with my local bank (yeah, it’s pretty lucky, and I don’t pay any account-keeping fees either). I keep saving money every week, and when the amount in the account reaches a significantly higher amount (for me, around $3000), I take some back out and invest it on the sharemarket. At the moment this seems to be working really well for me.

18 Dustin B March 23, 2011 at 5:57 pm

Great points, all. I will add that Dave Ramsey’s plan prescribes tackling debt after you have the $1,000 emergency fund, and only then tacking on the additional 3-6 months of living expenses. Dave also tells you to go about all of this with “Gazelle Intensity” (think a gazelle trying to outrun a hungry lion).

Highly recommended. Very manly, indeed.

19 Tara C March 23, 2011 at 6:07 pm

I have a 3 tier savings plan: $500 cash squirreled away inside the house, $10,000 emergency fund in easily accessible savings account, and retirement savings socked away automatically in 401K plan. I am continuing to add to the $10,000 emergency fund, but will be buying CDs with the extra money until I get to my goal of $50,000 in the emergency/opportunity fund.

20 MCH March 23, 2011 at 8:01 pm

Just to share my own story, I’ve been out of school for almost a year and a half now and living at my parents’ place. Yet after my first internship ended four months after school, I dawdled and got a stop-gap part-time job at $9 an hour. I couldn’t make up my mind what I wanted to do and kept plodding along. Three months there turned into ten.

Then within the span of one week I tore my ACL playing club Rugby and totaled my car in an accident I caused. I had about $1500 to my name, but with a bunch of back payments to my dad for cell phone bills and car insurance, that probably stands at about $500, maybe more. I was being incredibly stupid and irresponsible, but I learned the hard way — a full-time paying job, even if you hate it, is a job, and you need to save money for the unexpected. I’m in a tight situation living at home for a while longer, but I just took a full-time job and I’m on the long, tough road to moving out on my own.

So don’t do what I did.

21 JeffC March 23, 2011 at 9:09 pm

Great post, B & K. Have been a Dave Ramsey acolyte for years.

Okay kids, many of you know of the magic of having cash-on-hand for emergencies, and many here have testified that it has reduced pressure and stress in your life to have an emergency cushion of your own. It’s like money in the bank (wait: it is money in the bank!).

Now that you feel more secure than ever before, realize this: before you had your emergency fund, you were using your credit card’s limit, i.e., your ability to borrow, as your emergency fund. But now that you have your own in cash, you don’t need the inferior security of a credit card’s ability to bail you out, because you are now self-insured against emergencies.

Dump the credit cards, and use a bank debit card for point-of-sale transactions. It does everything a credit card does, but without the debt mindset that you supposedly have outgrown. Cutting up your credit cards is the real test. Until you do that, you do not have a true mindset of financial freedom.

As the proverb reminds us, “The borrower is slave to the lender.” You are the borrower; the bank that issued your credit card is the lender. You really can go on without Chase-Manhattan in your life.

Cheers and financial independence to all,

22 Levon Mkrtychev March 23, 2011 at 11:57 pm

Debt reduction and savings are some of the most important things to being financially healthy and an emergency savings account is the cornerstone to your savings. It allows you to feel more confident when unexpected expenses come along and gives you more independence as a man.

23 Laurinda March 24, 2011 at 12:42 am

Great article. It reminds me to pull out my Dave Ramsey “Financial Peace University” books and refresh my learning.

24 C. M. March 24, 2011 at 12:58 am

I have a FYJ account. In other words, “You can F@*# Your Job!”. I should explain that I am very happily employed by a company with a great management team and smashing coworkers. But, I hate the idea of being owned. As I work in an area where it’s pretty easy to pick up employment, I keep a great sense of freedom by having 2 months wages put away in an on-line account. It makes me feel like I choose to go into work for my current employer each day, not that I have to. This keeps my attitude to work a lot more upbeat and balanced. It kinda puts me on an even footing with the boss, we are both choosing this arrangement whilst, and only whilst, it suits us both. I’ve done this since my first year in the workforce and it works for a contankerous character like yours truly, although I’ve only had to contemplate accessing it once in 29 years. Even that did not eventuate as I had a new job within an hour. I guess it makes me feel empowered knowing I’ve got the choice.

25 One Citizen Speaking March 24, 2011 at 5:23 am

One of the most overlooked places to safely stash cash is your local bank’s safety deposit box. It is usually safe from widespread disasters and looters.And not prone to electronic glitches. If you use this route: include a note that this is your emergency cash stash and indicate the source of funds as being personal savings and household money. As long as the amount is less than five thousand dollars, there should be no problems with the authorities. Be sure to note the account in your will.

26 Jérôme Denis Andre March 24, 2011 at 6:55 am

“Kids end up in the emergency room;”

At least here in Germany this (normally) wouldn’t make you need to spend your savings as we have real healthcare around here. :-)

But still a very nice article …

27 Tyler S March 24, 2011 at 7:28 am

Two places to keep the dinero…disguised book hiding place on shelf (AoM has an article on how to make it) and some where else. Split it up in the event that you get robbed, so they might not find both. So the book is a good idea, under a table or animal cage is a good idea, and I have some in the evac-pack (also read AoM article), every household should have one.

28 GTJ March 24, 2011 at 7:48 am

I don’t know if anyone else does it this way, but my wife and I worked to build an emergency account several years ago. First, we set up a budget. It’s easier than it seems. Just go back to the previous year and divide your yearly spending totals by twelve and that’s what you are able to spend each month. Second, we paid off the credit cards. The interest was eating our budget alive. As the credit card balances decreased, so did the interest due each month. Where did the “saved interest” go? Yup, right into our “emergency fund.” Trust me, it adds up quickly. Finally, we were able to eliminate the “interest” category of our budget and transfer that amount into our savings. Third, we found a credit card that offerred double rewards with a low annual fee. (Those rewards are also an emergency fund: what if you have to fly off to Miami to visit an ill relative?) Finally, (and this sounds counter-intuitive) we pay almost everything with our credit card. The difference is that we pay off that credit card bill every month. This is not difficult because we are able to scrutinize the credit card bill to see where we spend our money and deduct those amounts from our budget categories. The final point I want to make is that any budget-savings-spending decisions must contain a goodly dose of delayed gratification. Plan your major purchases over three months, six months, one year or longer. You’ll sleep better knowing you have an emergency fund and you’ll enjoy those big purchases all the more because you waited until you could actually afford to own them. Good Luck!!

29 C, Irvine March 24, 2011 at 8:13 am

We save money around our household in two ways, both of which dovetail from my job as a bartender:
1) $25 of my tips per day goes into a coffee can, which is then traded up to bigger bills stashed elsewhere. This $25 is taken off the top in ones, as my tips for the night are totaled up and delegated for use elsewhere. (NOTE: I Let Mrs. Me count out the money and clip it in bundles. It makes her night and she’s SOLIDLY on board saving this money).
2) ALL my pocket change and tip change goes into a small plastic garbage can (roughly the gallon size with a spinning lid) and cashed in every 8 to 10 weeks. This money is for larger bills that may have crept up or designated financial chores we decide to use it on together. With my job as a bartender, the change amount adds up quite quick.
For us, if we slide the savings off the top before we start delegating where the rest of its going, it works better for us- Disciplined ignorance at its best.

30 Jared March 24, 2011 at 10:03 am

Similar to the FYJ mentioned above, I’ve always heard of this called a “Go To Hell” fund. The idea that if a higher up at work were to put me in a place that challenged my morals or ethics, I could literally tell them no and to go to hell. It’s a great feeling to be able to call a potential bluff and makes me feel bulletproof (maybe falsely, but the feeling is at least nice).

I have always kept my emergency fund in cash cause it’s kind of an exciting feeling to have that “gangsta roll”. I would reccommend having smaller bills for your cash emergency fund ($20′s or $50′s vs. $100s) just because the divisibility makes it easier when cases of water cost $20 after the disaster and the guy selling them “doesn’t have change”.

31 Claude March 24, 2011 at 10:03 am

Anyone reading this PLEASE follow through and take action. Speaking as someone who’s actually had to use their emergency fund. Thank God someone convinced us to have one, even though we thought there was no way we could afford to put money aside.

Another note. If you hide money at your home, make sure someone knows where it is. Maybe leave a note in a safety deposit box as to its location. A friends father burried gold bars at different locations around the family farm. The father died unexpectedly in a farm related accident and as of 10 years after his death no one had found any of it. They’re starting to assume he dug it back up at some point, but they cant be sure.

32 jW March 24, 2011 at 10:52 am

7 years ago, i had almost 10k in debt due to a bad decision, a tax error and a bad loan. And was no where near where I needed to be in terms of a down payment on a house.

1 year later, I had eliminated the debt and had 10k saved for the house. 18 months later I bought the house with a nice down payment. Here’s what I did:
1. Figure out where the cash is going! I was blowing a HUGE wad of cash on eating out every night and lunch. I dramatically overhauled that and started eating in. I saved a ton right there. Basically – find the leakiest pipes.

2. Automatic savings and automatic debt reduction payments via my online bank. I went hard after the debt first with small savings movement. Once the debt was gone, I went after the savings aggressively. I was actually making 2 payments a month to credit card to bring the debt down. All on pre-scheduled payments online.

3. I logged into the bank online everyday to check it out. Sometimes twice a day to see how I was doing. Eventually I understood my spend (leaky pipes) enough to have an estimate for what I should be able to spend every day with no issues on “other stuff” (gas, booze, food). for me that # was $40 day. When you have a # in mind, you can kind of regular your self better.

Find the leaky pipes. Save first. And sort of develop a budget per month and eventually per day and you’ve got it whipped.

33 Papackbi March 24, 2011 at 11:32 am

I know there are people out there saying to themselves, “I can not save $1,000 I have kids to feed.” Having kids should make this even a higher priority, I have six and not having and emergency fund is not even an option, when the transmission went out on the Suburban our biggest problem was getting around town not” how the heck am I going to pay to fix this?” The key is making it a priority, it will NOT happen on its own.

34 Bruce March 24, 2011 at 11:46 am

A minor point, for sure, but your statement:

“…monthly interest rates between 2%-4%, but they’ve since gone down to about 0.8-1%.”

is misleading, That would be an ANNUAL interest rate!

Keep up the excellent work!

35 Lena March 24, 2011 at 11:55 am

Don’t forget your local credit union when it comes to places to stash your money. I have direct deposit with mine and part of my paycheck goes directly to a few different saving accounts.

36 Eric R March 24, 2011 at 12:29 pm

I keep an emergency “get out of town” fund.
It’s comforting to know it’s there -just in case-.
Also, I never let our cars go below 3/4′s fuel for the same reason.
The 3 to 6 month expenses are a little harder, but definitely worth having.

37 Corey March 24, 2011 at 2:02 pm

Sounds like somebody has been reading Dave Ramsey books…

38 Larry March 24, 2011 at 3:40 pm

A while back I made the decision to move myself as much as possible to a “cash-only” personal economy, i.e. if I didn’t have the cash to buy something, I didn’t buy it. Of course, this didn’t work for buying a house since I didn’t have a couple of extra $100k laying around, but that’s beside the point. Once I started using cash, I put into practice a tip that I’d read about a long time ago. At the end of every day I open my wallet and if there is a five dollar bill in there I take it out and put it in an old cigar box. Once the box gets too full to close, I take the fives to the bank. At first I traded them in for larger bills until I had $1000 in cash for both my wife and me as an emergency fund at home. Later, I deposited the excess into my savings account. The only downside to this was the tellers at the bank started giving me the stink eye when I came in because they didn’t like counting my wads of fivers. It didn’t take long to save up a few thousand dollars and I use that money to pay for things like trips and man toys, never letting the bank account go below $1000.

One other thing. It was mentioned that it’s good to have cash around the house in case of a regional disaster that shuts down the ATMs, banks, credit card readers, etc. If that happens, all the local stores and various profiteers are going to only take cash and they will quickly run out of small denominations for change. With this in mind, half of my cash stash is in $20s and the rest is in $1, $5, and $10 bills.

39 Chris March 24, 2011 at 3:58 pm

This is all very sound advice. I use the multiple account approach. I have a wedding fund (getting married in summer 2012), emergency savings fund, bill payer fund (car/motorcycle insurance) and a checking account.

2 pieces of advice I have is:
1) You can use credit cards…just use them responsibly. I pay my credit card off weekly. I watch what I spend and pretty much put everything on my Discover card and pay it off every week/month (it pays back 1% and sometimes more in cash back rewards).
2) If your working and like me (single guy with no dependents), full time job, and get a decent bonus every year then take part of your bonus/tax refund and put it into your emergency fund. This year I put half of it in my emergency fund and that will quickly help you build up your fund.

40 Veruckt March 24, 2011 at 4:43 pm

It’s ashamed we can’t get Congress on Ramsey’s plan.

That said few feelings are more rewarding than having that 6 month safety net. My wife and I have a 6 month emergency fund to cover ourselves if we were both out of work for 6 months (if only one was out we’d be safe for a year) and it truly is a very liberating feeling. The easiest way to get this going is to stop going out to eat! Now our get togethers are free trivia nights, hiking at the park, having friends over for movies, and cooking at home. Not only is it a heck of a lot cheaper it’s far more fun.

41 Jacob March 24, 2011 at 4:51 pm

My emergency fund habits kept me off the unemployment rolls twice. Not sure I could do that again, but I’m working toward rebuilding it with my new lower-paying job anyway. Anyone reading this should do the same.

42 Chris Reno March 24, 2011 at 5:00 pm

Once you have an emergency, consider setting up a “CD ladder.” It’s quite simple. Let’s say you have X months worth of an emergency fund in your savings account. To make a CD ladder, every month for the next X months, take 1 month’s amount of money (Total fund / X) and put it in a bank certificate of deposit that will mature in X months. This way, once you have it all set up, every month a different CD will mature. If everything in life is fine you can roll the money over into another X month CD with the option of skimming the interest off the top for yourself. If it hits the fan during the month and you need money for rent/mortgage and other bills, you can cash the money out and spend it to live until another CD comes due in 30 days.

I would also keep at least one month of expenses in liquid savings for the time when you roll a CD over and something bad happens the next day and you need to go 29 more days until the next CD matures.

Of course, all this might not be worth the trouble with CD rates being so low right now. Or, you can do what I do and keep half of the emergency fund in a money market savings account and half in some preferred stocks of stable companies returning a decent dividend.

43 ShamRockNRoll March 24, 2011 at 5:14 pm

I finished school last May and took a low paying temporary job that I was really passionate about. I just spent the last few months without an income, and let me tell you, it sure as hell motivated me to create an emergency fund as soon as I can. I just landed a good job, and I’m looking forward to taking some of the steps you mentioned here so that I don’t feel beholden to creditors/corporate overlords ever again! This post came at a great time, as it’s some useful encouragement not to go on a spending spree once I get paid.

44 Kevin Daley March 24, 2011 at 5:31 pm

Great article!

Unfortunately, there’s a huge danger of failure with local banks these days. Economic conditions are such that the real interest rate (adjusted for inflation) is way negative. And keeping your money in cash around the house doesn’t hedge well against inflation, robbery, or house-related disasters like fires.

I think an emergency fund like this, in times like these, should be in gold, similar precious metals, commodities, and other stable assets which serve as hedges against the problems mentioned. Some will be quick to disagree with me, but it’s definitely something for everyone to consider and it should be mentioned.

45 Veruckt March 24, 2011 at 6:24 pm


I’m going to be one of those to disagree with you, respectfully of course. An emergency fund is something you need to have as a liquid asset so it can be used in a pinch. Gold is a commodity and could not be cashed in for car repairs or other day to day crisis.

That said I do believe inflation is going to be a massive problem in the coming years so I would not keep assets outside of an emergency fund liquid. Inflationary econcomies punish savers however my commodity of choice is land since it is slightly less volatile.

46 Tara C March 24, 2011 at 6:32 pm

No disagreement here, Kevin. We also keep a bag of gold coins in the home fire-proof safe for an additional hedge against disaster.

47 Amjad K March 24, 2011 at 7:20 pm

Good one, as much as I despise counting loose change, those coin sorters should help out. I like to check my accounts every now and then and transfer what’s after the decimal to a savings.

48 Vince March 24, 2011 at 9:41 pm

Hold it ALL in cash, and stash it somewhere good.

And he might have been a drug dealer, and probably not the best role model, but biggie smalls knew about money:
“…never let no one know how much dough you hold, coz you know, the cheddar breeds jealousy specially if that man fucked up, get your ass stuck up”

I don’t know what its like where the rest of you are, but where I live this is definitely the case. Do not let anybody, and i mean anybody, know about your spare cash, how much you have or where it is.
Not only are they likely to steal it, but if they know you have it they’re more likely to ask you to lend them some, and you’ll have a hard time coming up with an excuse when they know you’ve got it.

Finally I might add something my grandfather used to tell me as a kid.
He was a traditional man, and believed in traditional gender roles, as this concerns manliness i feel it’s appropriate.
He would tell me that the reason men had to be the boss’ in a relationship was because, if the shit really hit the fan, and someone was there with a gun to your kids head, demanding 100 grand or he’d kill them, he’d know where to get it, whereas he defied any woman to know how to make that money in a day.
might be a bit extreme, i understand, but he was an extreme man.

i guess the moral is, having a stash that can provide for you and your family in times of emergency is one of the most manly things you can do.

49 Jake March 24, 2011 at 10:33 pm

Pretty good advice. Your next article should be about what counts as an emergency, when to spend it, and how to discipline yourself against taking it out for unnecessary things.

50 EJ March 24, 2011 at 11:10 pm

You mentioned ING and others having 2-4% as crazy interest for a savings account. My first bank account when I got out of school payed 7-8%. In addition to the higher rates there was no minimum or fees associated with a savings account. Checking was a different matter there was a fee per check of a few cents. All very reasonable when you considered the interest you made. In those days the banks made you and themselves money. Today like most business its all about them. Then again customer service isn’t service anymore either. I feel sorry for the guys a few years younger than me and my children who will never experience how great customer service used to be, and to think it was even better when my Grandfather was young is almost unbelievable. Good article, a emergency fund is a great thing to have if you can afford it in these times.

51 Jacob March 25, 2011 at 3:23 am

Regarding precious metals, I have a certain distrust for gold since it isn’t particularly fungible, and could lead to tax issues or gold confiscation problems. I do like silver, particularly US coins from 1964 and earlier (or your country’s equivalent) since it is still high value to mass at present market values, and my research indicates a high probability of continued increase in value. Your mileage may vary.

Still, silver needs an honest coin shop for both buying and selling, and commodities are volatile. I would definitely recommend keeping $1000 in CASH, $20 bills and smaller, and considering silver as part of your investment (market gambling?) portfolio. If the shit hits the fan, CASH buys groceries and gas NOW. Keep the cash in a ziploc bag, and put that bag in another, bigger ziploc bag, and stash it.

Worst case scenario, your emergency fund bag goes in your bug-out bag and you are able to get away from the next hurricane, forest fire, or whatever, and you can pay your way. http://artofmanliness.com/2011/03/07/how-to-make-a-bug-out-bag-your-72-hour-emergency-evacuation-survival-kit/

My 2 cents, anyway.

52 Tarun Suri March 25, 2011 at 5:40 am

First time poster. I hope this is manly enough!

I’m a huge fan of credit cards, so I don’t personally like the advice of saving that $1,000 before paying off loans. That $1,000 is not earning you anything, however paying off that loan will save you in interest, even if you pay in small increments.

I rule of thumb that I’ve com across is that if you need to sell your assets in order to get rid of your debt, make sure that the proceeds are enough to completely eliminate a source of debt. However, I like your emphasis on “hassling”. If you can’t get rid of it in one shot, making a goal of getting it down asap is good advice.

My personal strategy has always been the following:
1) Buy everything with my credit card (I have a 0.5-1% cash back program)
2) At the end of the month, pay the full amount using my student line of credit (3%?). (I just bought myself 1 month of time to pay off my debt without incurring interest)
3) After another month, if I have the proceeds, I pay the student line of credit. (Don’t have money? You pay a measly 3%. Have money? You just bought yourself 2 months of interest-free lead time in case of financial difficulties).

The 2 month lead time is gold and help just as much as an emergency fund, especially if you don’t have one yet). if you don’t have a student line of credit, you can get various other alternatives such as a line of credit off assets (such as your house).

I also encourage people to have 30% of their lines of credit in use at all time. Not anymore since it will reduce your credit score. Any less and you’re incurring opportunity cost with what you could have done with that money. For a measly 3% interest (close to inflation), I woud never recommend having $0 in debt.

My 2 cents!

53 Jessica March 25, 2011 at 9:33 am

It seems that 6 months is a good rule of thumb. If you are considering switching occupations you may want to up you cushion to at least a years worth of income. Contrary to the above poster it is NOT advised to spend beyond what you cannot pay off completely within the month. For most people jugling multiple lines, rates and balances is a recipe for disaster. Our plan is simple.
1) Work to save at least 6 months of income.
2) Pay off any debts starting with highest interest first.
3) Save 20% if income for retirement
4) Buy only what you can afford to pay off in 30 days
5) Enjoy and live modestly.

54 av March 25, 2011 at 10:56 am

@Tarun — The idea is that not everyone handles credit well, and it’s very easy to get in the hole if you’re figuring out how to manage your money. So having a cash-based emergency fund puts you in a position where you don’t have to put yourself deeper in debt if you lose a significant source of income.

I don’t know why money management classes aren’t required in primary and secondary education in this country. (Also, I hate the credit card industry. Long live Elizabeth Warren!)

55 Abnehmen Schnell March 25, 2011 at 6:13 pm

Well i for one like to have an emergency fund and it has been very useful from time to time..

56 Frank March 25, 2011 at 7:43 pm

My room mate and I collect cans and bottles, both from stuff we drink, and collect from other people. Five cents might not seem like much, but we use the money we make to help pay for groceries. I see no reason the money couldn’t go into your emergency fund, and there have been times when we’ve made two or three bucks a week turning in cans and bottles for the deposit.

57 Tarun Suri March 26, 2011 at 3:55 am

I guess I’m forced to have to use this strategy. I’m still a student. And I’m currently on exchange in Singapore. I have no revenue and a lot of expenses. So I guess if you’re in a similar situation, learning to “juggle” the timing of payment of multiple credit lines is practical. Or else, I’ll agree with Jessica. However, once you learn the skill, I don’t believe it’s too hard to maintain. I think I’ll be using my strategy for a long time, especially considering that I don’t ever expect to have over 3 sources of debt within the next 5-10 years.

58 Dave Lewis March 26, 2011 at 12:47 pm

If you’re disciplined enough to keep your expenses under reasonable control (and that may be a subject for another time) you should have enough income to keep the bills paid on a regular basis. Any “extra” money should go into the emergency fund. An example of extra money might be overtime pay. Right now I’m in an hourly position and my job requires that I work most Federal holidays. I get OT for those days. My living expenses are based on my straight time pay. By saving the overtime I’ve got about $1500 a year in “free” money. We tap that account on occasion for fun things like vacations, but its also nice to know that the money is there for emergencies. Another source of money that most people don’t think about is the two extra paydays each year if you’re paid every two weeks. I’m paid 26 times a year (every two weeks) and my bills come in monthly. So, for example, I have 12 mortgage payments, 12 utility payments etc. One three payday month is usually in December and that’s how I finance Christmas. The other one for me is in the summer and a good portion of that check goes into the emergency fund.

Other stuff works for us too. I’m close to 60 years old and I’ve always kept a change jar on my dresser. We eat out once a week and buy food and household supplies in bulk. We drive 8 year old vehicles which are paid for and reasonably well maintained. I do most of my own vehicle and property maintenance and save lots of money that way. The secret is not spending 110% of your income every month.

59 Dan March 26, 2011 at 3:43 pm

I’ve also watched some of Dave’s stuff. I first heard 3 months’ worth of expenses should be saved, then 6, then 12. I settled on six months. I started a few years back when my brother got me one of the GPS toys you put on your car’s windshield. At that time, my car was so old I felt weird having a shiny new toy when the major parts were rusting away. So I returned it to the retailer for a gift card, sold the gift card on ebay for slightly less than it was worth, and took that $300 to start my back-up fund. Three years or so later, after taking 20% of my income from waiting tables and bartending, my back-up fund finally broke the five digit mark! Thanks to my lucky Jeopardy cash (sometime this summer) student loans will soon be a thing of the past too. Now to start carving out a fulfilling job, a la Mr. McKay….

60 Jonny Gibaud March 26, 2011 at 4:08 pm

What about an emergency food store?

61 Victor March 27, 2011 at 11:45 am

I have much trouble saving cash. I constantly tap into it, a 20 here, a 20 there…

But, taking extra payday cash and using it to buy needful things like canned or dehydrated food, maybe a case of TP, extra toothpaste, shaving stuff etc really pays off and a lot of it goes to the bug out bag or emergency first aid kit. I also have no problem at all buying “things.” So, I use my weakness to advantage by buying gold and silver bullion, coins like American Eagles or Mexican silver Libertads made from pure silver. Have an extra 3 hun after the bills are paid? Go out and get some gold, maybe a 1/10th ounce or maybe a nice pure silver coin like a Mexican LIbertad, silver Canadian Maple Leaf or American Eagle. Buying “fractional” gold in quantities less than a full ounce (1/10th, 1/4 and 1/2 ounces) is more costly in increased premium percentages per weight (think of it as the dealer’s percentage), but who can afford to plunk down 14 hun on an full 1 ounce government minted coin every payday? That said you can surely afford a 1/10th ounce Kruggerand (they offer the lowest premium in government minted gold pieces at around 150 dollars) One gold seller calls it a “passport to gold ownership for everyday people.” Or you could get some fresh air, feel the crystal waters flowing past your ankles while kneeling astride a lovely stream and getting your gold the manly way, by panning for it.

If 3 hun is still too rich on payday, buy just 1 ounce of pure silver. The lowest premiums are for what are called ’rounds’ or coins that are minted privately. You can also buy silver bars and are minted by private mints link Sunshine Mint or Northwest Territorial Mint. Bars and rounds always come with the minter’s “hallmark” or official rating in purity and the honest weight of silver in the coin. My favorites are Northwest Territorial rounds showing a grizzled 49er working a gold pan streamside. A manly motif if ever there was one.

I still may have a weak point where all that cash in the safe is “burning a hole in my pocket,” but there are so many other ways to use that money and you are only limited by your imagination and ingenuity in amassing a stash of value or buying the things you need should the paychecks ever stop coming.

I do have some cash, and still take the odd 20 dollar bill from time-to-time, but having most of my stash in silver and gold has paid off for me.

I started buying silver every payday at 7 bucks an ounce, it’s worth close to 40 per ounce now. The gold in my stash went from 800 bucks an ounce to 14 hun per ounce last time I checked (OK I check everyday…) To make buying and selling precious metals pay off, you have to develop a good relationship with the best and most trustworthy coin shops in town. Believe me, when the car breaks or you need the right tool for the job, selling off a few coins really pays dividends once you learn how to use your resources. As a matter of fact, tomorrow I’m selling some silver to buy a canopy for my pick up truck. I’m going to convert it into a hardshell “camping tent” on wheels that blends in with other vehicles on the road. It’ll be slick with diamond plate aluminum interior storage shelves, a diamond plate metal platform for sleeping and storage for my manly .357 to keep the creepy things at bay along the lonely trail. It will be set up for recreational camping along the gold streams, but is mainly going to be our bug out rig. Now that’s another worthy investment..

62 cam March 28, 2011 at 3:42 pm

I like to modify # 2 to be one month of expences for every 10K of income.
It will take about 8 months to find an 80K job but you should be able to find a 30K job in closer to three months. In this economy, it might be a little off but I think it’s a good rule of thumb.

63 AtomicBanana March 28, 2011 at 4:25 pm

Along with the author, I ascribe to the ING Direct emergency stash, for the purpose that any direct overspending will always come out of my brick-and-mortar bank account without touching the money that sits in my ING Savings. I’ve had it on automatic deposits for two years now, and I’ve exceeded my $1000 minimum enough times to A) travel to Japan twice on my own steam and B) pay off a good portion of my credit card debt.

The best advice I can give are these two things:
1) set your automatic transfer to occur the day you get paid (just about everyone should have direct deposit these days) so that you won’t get the automatic high from seeing your bank account bounce into the high quad digits on payday and then spend your emergency dough on drinks at the bar. If possible, have your emergency cash sent as a secondary direct deposit. It isn’t hard for your HR people to take care of.

2) Always assume you have less money that you think. Early in my financial career I was stoked with direct deposit and low/no rent, and spent money like crazy every payday. The weekend would end, and I’d have spent a good chunk of my new money, thinking I still had some left to live on until my next payday. A few days later I was broke, thanks to automatic payments to utilities, credit cards, cell phones, insurance, cable, etc. that I’d forgotten about. Some people are able to keep 100% track of what they have left to pay each month, and some people lose their shit when they see they have more than a grand in their checking (“spending”) account. Don’t fall into that trap. If you seem to end the month with less money that you expect, think about starting a secondary CHECKING account that pays all your bills. Calculate what you spend every month, and send half with each paycheck. That way, your primary checking account (the one that vanity-buys those ps3 games) will remain at a lower dollar amount, and none of that cash will eat into your living expenses (beyond food/gas).


64 Dylan March 28, 2011 at 5:31 pm

A guy I worked across was always very generous with advice and while much of it was pretty vulgar, one piece was brilliant for Canadians. He told me never to spend $5 bills. In Canada there are no 1 dollar bills. He said when you break a $5 bill to, for example, buy a soda for a $1, it doesn’t cost you $1, it costs you $5 because you’re way more likely to spend the change you got back and fritter it away. Instead at the end of the day put your $5 bills under your mattress or something. You’ll be surprised at how quickly it adds up.

65 Womanhere March 29, 2011 at 9:15 pm

Here’s a great rule to add:

Don’t buy what you don’t need. OR, only buy what you need.

Try this out for a year. You’ll have much more than 1K in your bank account with this lifestyle change. By eliminating going out often and finding other ways to have fun, you can significantly increase your savings.

66 Jared B March 30, 2011 at 3:19 pm

Great post. I was working on this long before I had even heard of artofmanliness.com. When I was still in the Marine Corps, I was making more money than I knew what to do with. If I remember right, base pay for a private was a grand a month. I took advantage of free movies and internet at rec centers on base, among other free services. I was eating at the chow halls near the barracks, since they were paid for before I ever saw my paycheck. By staying in and walking to places on base when I had to get out of the barracks for awhile, I saved a lot. I was one of the few, if not the only, Marines in our unit who wasn’t paying any bills while we were in Iraq, so all that tax-free money was pure profit. When I got back I had enough money I could have bought a brand new Silverado straight off the lot, but instead I put a large down payment and built credit by paying the rest in installments. I’ve got double enough to cover the balance in savings, and I’ve put a large amount in a CD in hopes of buying a house when I’m out of college. A lot of higher-ups thought I put more thought into my finances than most Marines they talk to.

67 His_Wife March 30, 2011 at 5:29 pm


Great post. Too many people these days are maxing out their incomes and forgetting that a little discipline goes a long way.

Another great online savings account for high-balance accounts is through WT Direct (wtdirect.com). Account holders with $10,000+ get the highest available interest rate out there. You can also do a next-day transfer of your money back into your checking account for a nominal fee.

68 Wayne April 4, 2011 at 1:37 pm

For weekly purchases, I have two accounts.

One where bills are paid out of, then a second spending account for food, clothes, etc.

The second account gets money every Friday.

That way, I know how much I have to blow, and it doesn’t interfere with my rent, etc.

69 Ravi Kishor Shakya April 13, 2011 at 2:48 am

1) It would be helpful to stash away the emergency funds cash in some liquid funds(rather than keeping them in savings or fixed deposits).
2) Credit cards are a big no-no. I do not keep them.

70 Matthew April 17, 2011 at 10:45 pm

It’s important to have some “discretionary” money in your budget. Unless the situation is VERY dire, you WILL spend money on yourself – a coffee, a new video game or other toy, a night out with friends. If you plan not to do this, then you’re “cheating” to do it, and once you’re cheating anyway, what’s the difference between $20 and $40? Even a small budget gives you the freedom to buy little things for yourself, but keeps it under control and helps you think about the actual value of something (to you). Would you rather have a drink with friends or buy that new DVD?

71 Nika February 28, 2013 at 1:16 am

Am I being to aggressive because as I see it my emergency fund is going to take forever to save up. I figure if I live bare bones I can get by on $2,000. I can probably do $1500 if I eat ramen noodles everyday, and cut off internet and cable. But really, my monthly expense are $1500 easily without splurging, so we might as well use 2,000. I’m self-employed, so I am more comfortable saving up six months living expenses at this point. Three doesn’t seem like enough. I’m bringing in about $4,000 a month. I figure I can comfortably put 400 a month into an emergency fund. At that rate it will take me 30 months to build up a six month emergency fund. Does that sound right, or am I saving too much? 400 x 30 is $12,000 which is six months for me. OMG!!

72 FeatherBlade March 2, 2013 at 9:41 pm

@Nika: If you bring in $4000 per month, but can live on $2000, then live on $2000 and put away $2000 per month into savings. It will take you 6 months to get your emergency fund, then you can go back to living on $4000.

73 natty doc March 24, 2013 at 7:37 am

Mostly agree with this article. In order of our priorities over the years:

1. Pay off high interest debt as fast as possible
2. Save six months of monthly expenses in ING savings account.
3. Contribute up to the company match in a 401k or 403b (if they offer a match).
4. Max out a Roth IRA each year.
5. Still have money left? Try and max your 401k/403b
6. Have kids? Add to a 529b
7. Still have money? Think about purchasing individual stocks.

I think a very good book to read on personal finance is Bogleheads.

74 Mike Lombardozzi February 24, 2014 at 10:30 am

This is a great list. I like that you included everything from Dave Ramsey to Bogleheads. This is the exact list I would have written, except much more detailed. Nice work!

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