$1,000 was never enough and other things the pandemic taught us about life and money.
I never really had to worry about money. As a child, I was given everything that I needed and some of what I wanted. Looking back, it was a pretty amazing childhood but one thing I really wish was discussed more was money. To be honest, I lived in a fantasy land until I went off to University and had to survive on my own.
At the time I really thought that I was budgeting, but really I was living paycheck to paycheck. I never really had money set aside just in case all hell broke loose. And to be completely honest with you up until 2020 it was something that I didn’t really prioritize. I mean I was healthy, I had a steady job – what could go wrong?
By now you’ve probably guessed where this is going. In March 2020 the world turned upside down. COVID-19 had reached Barbados’ shores and by the end of the month I had started working from home, luckily I still had a job. But what if I didn’t? I can honestly say to you that I would not have survived 2 weeks without my JOB.
So, this brings me to today’s topic on why you need to stash some cash for a rainy day. Let’s get into it!
Sorry Dave, $1,000 is not enough!
If you’re new to the personal finance world and don’t know who I’m referencing don’t worry he’s not important. All you need to know is that $1,000 is not enough to cover the cost of a true emergency. As someone who lives in a HCOL country, I knew this from the jump and that’s why I had such a hard time jumping on the DR bandwagon (among other grievances). A thousand dollars in Barbados goes by insanely quickly.
Before I get ahead of myself let’s talk about what an emergency fund is, and what it is not.
I would define an emergency fund as a buffer between you and life’s unexpected and not so great moments. It’s money that you’ve set aside for large, unexpected events so that you don’t have to use credit cards or incur debt. For example, if you were to lose your job today but had a stash of money saved up somewhere for a rainy day then things don’t look so bleak.
Other examples of how you can use your EF include:
- Unforeseen medical expenses
- Major car repairs
- Home-appliance repairs
- Home maintenance
And for my Caribbean brothers and sisters, we also have natural disasters to think about like volcanic eruptions and hurricane season.
How to Calculate Your Magic Number
Step 1: Add up all of your monthly bills
Step 2: Multiply that by the number of months you’d like to have saved up
That number is your Emergency Fund!
Experts recommend that you save at least 3 to 6 months worth of expenses in your Emergency Fund. I know a lot of people who don’t bother going through the hassle of adding up bills and just work towards the goal of saving 3 to 6 months of salary and that’s an even more ambitious goal. Do what works for you.
Now if you’re like me and on the lower-income side of things, then this seems like a daunting task, but like most things break it down into smaller, manageable monthly, weekly, or even daily goals. Remember that $1,000 is just a starting point and not the end all be all of your Emergency Fund.
- Set target dates for your goal(s)
- Take part in savings challenges
- Find an accountability partner
Here’s what I’m doing, whenever I get an expected lump sum of money like a bonus or gift I set most of the money aside for my EF and the remainder I spend how I see fit. Sometimes I don’t spend it at all but the point is that I’m still enjoying my money while being financially responsible and saving for the future.
The Best Places to Keep Your Emergency Fund
While you’re saving up this stash of cash I recommend keeping it separate from your everyday spending because the temptation to YOLO and spend it is insane (this is coming from personal experience 🤦🏾♀️ #weliveandwelearn)
If you live outside of the Caribbean a High Yield Savings Account will be your best bet, unfortunately, I have not been able to find any good offers here in Barbados. Most banks are offering a 0.01% APY and truth be told I’ve never seen interest credited in my bank account and that’s why I recommend saving your emergency fund with your trusty credit union. They have yet to let me down and they give you a teeny tiny return on your investment with quarterly interest payments.
Investing your Emergency Fund is tempting, but the point of having your emergency fund is that it’s easily accessible. However, if you are a high-income earner then investing some of your emergency stash will most likely be more beneficial to you in the long run. After all compound interest is bae. I recommend that you always run the numbers.