Guide To Building An Emergency Fund That Actually Works

Emergencies happen to all families.

But in a medical family, they are a type of tag teamwork. Your DrSpouse is busy handling other people’s medical emergencies. And you deal with all other emergencies.

You could be handling any of these all by yourself:

  • Your car transmission breaking down
  • Your child deciding that throwing a ball at their brother and busting his head was a good idea
  • Your pet suddenly vomiting and getting sick
  • Your house getting flooded after a storm
  • A loved one suddenly passing away and buying last-minute flights for the funeral
  • An unplanned pregnancy (a wonderful thing, just not for your wallet)

Any of these emergencies is not a matter of if, but WHEN.

Without a plan, you’re likely going to whip out your credit card and charge it.

The problem with credit card is you will be drowning in high interest later. And most Americans do. We have a crisis where 46% of the population wouldn’t be able to come up with $400 if needed in a pinch, according to this study.

You need a plan, friend.

So let’s prep you and talk about emergency funds. I wrote it in Q&A format.

What Is An Emergency Fund?

An emergency fund is a liquid pot of money set aside to prepare for financial shocks that inevitably happen in life.

How Much Do You Need In It?

I believe you need 3 months of fixed* expenses saved up in it, whether you’re in attendinghood or during training.

*fixed = all your necessary bills like rent, utilities, and food are paid. It doesn’t include retirement savings, going out to eat, or shopping. You’re surviving, but not thriving.

If you have been around many finance blogs, you know that Dave Ramsey says 6 months. Sue Ozman says 8 months. Other financial gurus say 12 months!

“Why do you ONLY recommend 3 months, Theresa?”

Well, if you’re still in medical training AND raising a young family, paying for the boards, interviews, and have student loan payments, 3 months is really all you can probably muster. If you’re in attendinghood, more than 3 months is potentially a lot of money not working for you.

That’s why 3 months works specifically for medical families.

How Do I Know What 3 Months Is?

To find out this number, use Mint to track your spending. It’s FREE and our household uses it. Then figure out how much Mint says you spend in one month. Multiply that number by 3, and you get three months.

How To Create A System Of Saving For An Emergency Fund That Actually Works?

The way is for you to build your emergency fund and save money is to Pay Yourself First (PYF).

Order absolutely matters. You HAVE to pay yourself first.

The PYF tactic means the money gets automatically shifted out of each of your payroll before you even have access to it.

The key here is that it’s automatically done for you. When you make a behavior automatic, it takes out the emotion and decision-making. It also makes it invisible so it’s out of sight, out of mind.

If you’re in medical training, set up your direct deposit to automatically deposit 10%, 15%, or 20% of their paycheck (whatever you can afford) into a savings account.

If you’re in attendinghood, set it to at least 20% or more.

Warren Buffet said:

“Do not save what is left after spending; instead spend what is left after saving.”

What Kind of Savings Account Should I Use?

Saving accounts with brick and mortar banks now offer insulting interest rates at around 0.5% 😒 (I remember the hay day when they used to be 5%. Maybe you do, too. Gone are those days. For now.)

Good news is savings accounts with online-only banks are offering somewhere between 1.0 and 2.0%. These don’t have the same overhead as brick and mortar banks and are able to pass their savings to you. As long as it’s FDIC-guaranteed, it’s safe.

Personally, we’ve used Alli and Capital One 360 with high interest rates and have no problem recommending them.

Check for current rates of various saving accounts for the best one.

Where NOT To Keep Your Emergency Fund?

Do NOT put your emergency fund in the stock market such as your 401k/403b or IRA.

Money in the stock market is meant to stay in the market for the long-term. It should weather highs and lows over decades.

If you make your emergency fund your 401k/403b or IRA and the market goes down at any one time, you could lose all your money at a time when you need it.

Let’s Review

Here are the key takeaways:

  • Have 3 months worth of fixed expenses saved up in a savings account.
  • Pay Yourself First (PYF) by automatically direct depositing from your payroll.
  • Park your emergency fund with an FDIC-guaranteed bank with high interest. Shop for them on for the best rate.
  • Do NOT park your emergency fund in the stock market.

In Summary

Your DrSpouse is already having to deal with emergencies at work. So you deal with family emergencies. It’s teamwork!

Have an emergency fund so you can absorb the financial shocks throughout your life so you’re not whipping out the credit card and carrying a balance every single time this happens and then drown in high interest down the road.

You got this, friend.

I’m a hugger. I’m hugging and supporting you ❤️

To your strong medical family,

Your Turn

What kind of financial shocks did you experience during training?