The radiator in my studio clanked on for the first time this season last Thursday night, loud enough that I sat up in bed. Heat is included in my rent, which is one of the reasons I picked this place. It's also a reminder that winter is coming, and winter is when cars break, heating bills spike for other people and things in general go wrong.
My emergency fund is at $7,400 today. My new target is $9,000. Here's where that number comes from and how I'm getting there.
Why the target went up
Last December, I hit my first emergency fund goal: $6,000. I was living in my old bedroom at my parents' house, paying them $300 a month, and my fixed costs were small. $6,000 covered well over three months of everything I paid at the time.
Then I moved into my own studio in Evanston on June 1. Now my rent alone is $1,295. Here's what a normal month costs me now, roughly:
- Rent $1,295, parking $50, electric around $38, internet $55
- Phone $35, car insurance $131, renters insurance $14
- Student loans $550
- Groceries $260, gas $90, fun $120, everything else about $110
That's about $2,750 a month. Three months is $8,250. I rounded up to $9,000 because a lot of real emergencies come with a bill on top of the regular bills: a deductible, a tow, a plane ticket. The extra $750 is my cushion for the cushion.
Three months isn't a magic rule, and some people aim for six. For me, with a steady job and a little side income, three months of actual costs plus a buffer feels right for now. I'll revisit it once the student loans are gone.
Where I stand
After the move, the money left over from my move fund went straight to the emergency fund. I'd saved $4,500 for the move and spent $4,175, so $325 went over, and the fund went from $6,000 to $6,325. Since then:
An automatic $250 transfer every month, July through October, added $1,000. Interest from my online high-yield savings account added about $75 over those four months.
That brings me to $7,400. The account pays about 3.5% APY now, down a bit from the 3.8% it paid when I moved my $1,800 there in April of last year. Rates on these accounts move around. It's still far better than the big-bank savings account I left, which paid two cents a month. The account is FDIC-insured, which I checked again when I moved this year, out of habit.
The automatic transfer does most of the work
I've learned that I'm not good at deciding to save money every month. I'm good at forgetting about money that already moved. So the $250 transfer runs automatically from my everyday checking account the day after my first paycheck of the month. I don't approve it. I just see it in the club sheet afterward.
At $250 a month, the remaining $1,600 would take about six and a half months. With interest, I'm projecting I'll hit $9,000 around next April. If a pet-sitting month goes well or I get a bonus at work, I might send a lump sum and hit it sooner. If something actually goes wrong, I'll use the fund, because that's what it's for, and start rebuilding.
I keep a short list in my planner, so I'm not deciding this at 11 p.m. under stress:
Yes: a car repair I can't cover from my everyday account, a medical bill bigger than what's in my HSA, losing my job, a family emergency that needs travel, a big unexpected apartment cost.
No: holiday gifts, a concert, a sale, a vacation, a new phone because the old one is slow. Those come from my regular budget or from planning ahead.
This year has tested the list a little. When I got strep throat in August, the $164 came from my HSA, not the emergency fund. When my car needed brakes last October, I covered the $465 from checking. So far the fund has done its real job, which is mostly to sit there and let me sleep.
Honestly, I'm a little proud. A year and a half ago I had $1,800 saved and $2,350 on credit cards. Now I'm paying my own rent and still adding to savings every month. It's slower than when I lived at home, and that's fine. The point was never speed.
I mentioned the new target at Sunday dinner, and my mom asked whether $9,000 was "just sitting there." I said yes, on purpose. My dad nodded like I'd finally said something sensible.
