2015 was the year of setting financial goals for me and Ty. And guess what? We met them all! Last January, we took a hard look at our finances and decided it was time to get an emergency fund put into place.
When we moved to Chicago in June 2013, just two weeks after getting married, we had no jobs, an apartment that cost $1100 a month, and no idea where our money was going. We quickly ran out of cash and realized it was time to set a budget. Yet for the next year, our financial situation remained rocky as our work came and went.
Thankfully by the end of 2014, Ty and I both landed stable jobs and our financial stress slowly lifted. However, instead of changing our spending habits with our new found stability, we decided to continue living our lives on our tight budget and put the extra money we were making into an emergency fund.
Why Have an Emergency Fund?
In short, we recognized that if we were to lose our jobs, become hospitalized, or have any other unexpected expenses come our way, we’d have no way of supporting ourselves financially. Basically, an emergency fund is a savings account that could cover the costs of our living expenses in case of an emergency.
How We Built an Emergency Fund in 10 Months
- We figured out our monthly expenses. First of all, we had to figure out how much we were spending each month to live. We added up our rent, groceries, bills, and all other non-variable expenses.
- We set our savings goal. After researching online, we found that most people recommend saving 3-6 months worth of your living expenses. We decided that 5 months was a reasonable goal for us.
- We set a timeline. After crunching numbers, we agreed that we could meet our goal by the end of 2015.
- We created our budget. In order to make this goal a reality, we not only had to figure out how much our monthly living expenses were and how much we’d be putting into our emergency fund, but we also had to decide how much we would allow for the fun stuff too – like going out with friends, date nights, and shopping.
- We tracked all of our expenses. Ty was the master of this. He used a template in Numbers for Mac and created a spreadsheet that tracked our income and expenses. Every time we spent money, it was put into the spreadsheet and we could see how much we had left to spend in each of our budgeted categories and where we needed to watch ourselves for the rest of the month.
- We lived below our means. As mentioned, even though we were making more money, we didn’t act like we had more to spend. We moved to a new apartment that was $200 cheaper per month, still cut out cable, stuck to our $300 monthly grocery budget, and always opted for public transit even when we really wanted to take an Uber (okay, maybe there were a few exceptions to that rule).
- We didn’t make it optional. We treated our emergency fund like a bill. Even if money was tight one month, we still made putting money in our emergency fund a priority. We’d cut going out to eat before cutting putting money into savings.
- We never touched it (and thankfully still haven’t had to!). We knew that once our money was put into our emergency fund, we couldn’t ever use it, unless, well, there was an emergency.
- We celebrated. And when we finally made our goal, we celebrated! After all that hard work, it felt good to reward ourselves with a night out that was (just a little) over our budget.