Module 2: Emergency Funds & Saving

The Problem Nobody Talks About

You're doing great. Saving money. Paying bills on time. Then your car breaks down. $800 repair.

Or your laptop dies. $1,200.

Or you lose your job. Now what?

Most Americans can't cover a $400 emergency without going into debt. That's not because they're bad with money. It's because they never built an emergency fund.

Real Stories

Jessica, 29: "I had $3,000 saved up. Then my transmission failed. $2,800 repair. I paid cash and didn't stress for a second. That's when I realized—this is what financial peace feels like."

Marcus, 34: "Got laid off with zero savings. Had to put groceries on credit cards while job hunting. Took 2 years to pay off that debt. Never again."

The difference? One emergency fund.

The Standard Advice

3-6 months of expenses is the classic recommendation.

But that's intimidating. If your expenses are $3,000/month, that's $9,000-$18,000. Most people give up before they start.

The Better Way to Think About It

Stage 1: $1,000 - Covers most minor emergencies (car repair, ER visit, appliance breaks)

Stage 2: 1 month of expenses - Covers rent/mortgage + bills if income drops

Stage 3: 3 months of expenses - Gives you breathing room to find a new job

Stage 4: 6+ months of expenses - True peace of mind

Start with $1,000. Then build from there. Progress beats perfection.

Three Requirements

1. Liquid - You can access it within 24-48 hours
2. Safe - FDIC insured or equivalent (not stocks, not crypto)
3. Separate - Not in your checking account where you'll spend it

Best Options

1. High-Yield Savings Account (HYSA)

Online banks like Marcus, Ally, or Discover offer 4-5% interest. FDIC insured. Easy to transfer to checking when needed.

2. Money Market Account

Similar to HYSA but might include check-writing. Slightly more flexible.

Bad Options:

• Your checking account (too easy to spend)
• Stocks (can drop 30% right when you need it)
• Crypto (even more volatile)
• Under your mattress (loses value to inflation)

What About Inflation?

Yes, savings accounts lose purchasing power to inflation (~3-4% per year).

But that's the cost of insurance. Your emergency fund isn't an investment. It's protection.

Once you hit 6 months of expenses, then you can explore other options like I-Bonds, gold, or Bitcoin for additional savings. But not before.

Step 1: Automate It

Set up automatic transfer on payday. Even $50/month. You won't miss it after 2 weeks.

Saving $50/month = $600/year. Saving $200/month = $2,400/year.

Step 2: Find the Money

Before you say "I can't afford it," try this:

• Cancel 2 subscriptions you forgot about: $20/month
• Cook 2 more dinners per week instead of takeout: $60/month
• Make coffee at home 3 days a week: $15/month
• Skip one weekend out per month: $50/month

Total: $145/month without changing your life dramatically.

Step 3: Use Windfalls

Got a tax refund? Bonus? Birthday money? Put 50-100% straight into emergency fund.

A $1,000 tax refund gets you to Stage 1 immediately.

Step 4: Don't Touch It (Unless It's an Emergency)

Real emergency: Car broke, lost job, medical bill, home repair you can't delay

Not an emergency: Sale on shoes, vacation, new phone

If you're tempted to raid it, ask: "Would I borrow money for this?" If not, it's not an emergency.