How To Build A Financial Emergency Fund | Ben LeFort | Skillshare

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How To Build A Financial Emergency Fund

teacher avatar Ben LeFort, personal finance & writing online

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

6 Lessons (12m)
    • 1. Overview of class project

      1:19
    • 2. What expenses you want covered

      1:39
    • 3. Track your spending

      0:51
    • 4. How much do you need in an emergency fund?

      4:36
    • 5. Your emergency fund savings plan

      1:55
    • 6. Wrap up and review

      1:57
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About This Class

Having an emergency fund means you have access to cash so that you can pay your bills in the event of a financial emergency like losing your job.

Most financial experts recommend having between three and six months worth of living expenses in your emergency fund. The truth is that it depends on your personal circumstances. Some people are comfortable with a one-month emergency fund, while for others, it makes sense to have at least one year’s worth of living expenses set aside.

In this class, I will review the relevant factors you need to consider when building an emergency fund and show you how to create a savings plan to build your fully-funded emergency fund.

Meet Your Teacher

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Ben LeFort

personal finance & writing online

Teacher

Hi Everyone, 

My name is Ben and joined Skillshare to teach two subjects that I've been passionate about for years.

Personal finance Turning online writing into a scalable business

I invite you to check out all of my classes on these subjects and let me know if there is a subject that you think I should teach a class on that I currently am not. 

Cheers,

Ben 

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Transcripts

1. Overview of class project: I everyone? My name is Ben Afford. I am going to be your instructor for today's class, where we're talking all things emergency fund. The two main takeaways they're gonna get from this class are to figure out how much money you need to have in your cash emergency fund. And second, you're gonna learn how to develop a savings plan that will help you achieve your goal of building your fully funded emergency fund. So that is exactly what we're gonna do with the class project. Go down to the Project and Resources Tab and under resources, I've provided you in Excel Workbook, which you're going to use as you follow along the videos. It's gonna help you calculate how much you need in your emergency fund. Based on what we're learning in the class, you input your specific information. It's gonna help you figure out how much you need to save each month, starting right now to build your emergency fund. And then I'm gonna encourage you to share with the class if you're comfortable. What was your total emergency fund number? How many months worth of emergency fund was that covering? And did you feel like that was too high or too low. Or if there's anything really that you that really stuck out free, that you learn in this class share with everybody else because we want everybody to be helping each other along. We're on the same financial journey, so share what you've learned from here and let's get some discussions going. 2. What expenses you want covered: the first step to build an emergency fund is to be crystal clear on what expenses you want to have your emergency fund cover. Many people think that emergency fund should cover all of your regular spendings. I look at an emergency fund is a way to guarantee I have enough money to cover all of my essential expenses and by essential expenses. I'm talking about housing, transportation, groceries, cell phone and Internet minimum payments on debt, medical bills and other expenses, child and child care related expenses and anything else, basically any other expense that I would not be willing to cut under any circumstance those or what you should be saving for inside of your emergency fund when I don't like saving for Insider Emergency Fund is spending on non essential spending something like, you know, going out to Starbucks. We're going out to a restaurant. I don't really like to include these an emergency fund, because if you think about what an actual financial emergency looks like you lost your job , you have no idea when money is gonna be coming back in. Odds are if you are experiencing a true financial emergency and anyone who really has lived through it. True financial emergency knows this. You're not going to be playing a trip to Jamaica when you've just lost your job, right? There are some expenses that you were not looking to cover with an emergency fund. I look at emergency fund is a way to guarantee for as long as possible that I can keep a roof over my head, food on the table and Internet cell phone, all those things still working, even if I have lost my job and lost my income. 3. Track your spending: so the first thing you need to do then is really to learn how to track your expenses. And I like the categories, my expenses, into one of three categories. You know, the big Three expenses of housing, transportation and food values, which are non essential spending. But they're spending on things that make you happy and stuff, which is not essential spending on things that don't make you happy and don't provide any real value. So go back and track multiple months worth of expenses so you can get a sense of how much you spend on average on each of these categories and how much of the big three of your essential living expenses you want to include in your emergency fund. So now let's go ahead and open up our worksheet and let's get started on in putting some information that will help us determine how much money we need inside of my emergency fund . 4. How much do you need in an emergency fund?: Okay, So in this emergency fund calculator on the Excel workbook, the first thing to do is enter your essential spending that you want your emergency fund to cover. So first thing is ask your monthly rent or mortgage costs into your personal information, but I'm going to enter some example members to show you how it works. So let's say the monthly rent was $1500 per month. It's gonna ask you for a monthly utility payments that includes, you know, heat, gas, electricity, garbage. Include your cell phone and Internet. Right, cause if you're not gonna cut your cell phone bill, you need that. We're gonna basically consider that as a utility. Eso for simplistic of math will say that's $100 per month. It's probably quite a bit more than that in reality monthly insurance payments. So this could be car insurance, life insurance, health insurance, renter's or homeowner's insurance will say that's $100 per month. A monthly transportation costs. So what's your car loan payment? How much I'm spending on gas maintenance. Well, say $400 per month for that minimum monthly payments and all your debts. Eso if you have credit card payments or personal loans. Lines of credit. You're going to need to keep making those payments even if you are experiencing financial emergency. So you're gonna want to say for that. So let's say the minimum payments on all of those loans each month is $100. Um, we'll go ahead and also assume that you spend $300 per month on groceries. So now we see here. OK, we have all of our essential spending. Input it into the calculator. The next variable you need is to enter the number of months you would like your emergency fund toe last. So if you were to lose your job tomorrow for how many months would you like to be able to pay for all of your essential spendings before you get a new job? And of course, you know, what would we like? We would like to be able to pay for those things forever, but we need to be realistic. So most financial experts recommend having an emergency fund. They can cover 3 to 6 months worth of basic living expenses, Whether you are, you know, closer to the three month or the six months or even Mawr will depend a lot on your circumstances. Two big things that are going to determine your size of your emergency fund is gonna be your job security as well as your personal preferences. So the more secure your job is, the less you know an emergency fund you might be comfortable with. If you have rock solid job security, maybe a three month emergency fund is appropriate for you. If you think you could lose your job any time you want, it's big of an emergency fund. It's possible, and you want that thing. Ah, fully loaded as quickly as possible. So if you feel like you do have shaky job security, you might want six months or even mawr in an emergency fund. And you know, if you're a retiree, a lot of retirees if they're living off their investments. Many retirees have a year or mawr worth of emergency fund savings because you know they're not working anymore. They can't go get another job. Many of them are living off their investments. And if the stock market crashes on their living off their investments, ah, and then you start withdrawing from those investments while it's crashed, the markets crashed. You could find yourself running out of money in retirement, And that's why a lot of retirees have two plus years worth of cash on hand in an emergency fund. So take a moment before you enter this. Think about how secure your job is and also think about your personal circumstances. Do you have any other income? Are you in a two income household? How secure is your spouse's income? Do you have any rental income, anything like that? All those factors consider that and come up with your emergency fund. I'm gonna go ahead cause I am a bit of a chicken in this regard. I really think six months is a solid goal for an emergency fund. So we're gonna enter that into the worksheet here. Boom! And now this tells us right down here the highlighted sell how much money that we need in an emergency fund. And how did it come up with that? It multiplied all of our basic living expenses by the number of months that we want. Those basically live expenses to be paid from our emergency fund. So in this example, we need to say $15,000 um, to fully fund our emergency fund 5. Your emergency fund savings plan: So now once we have figured out how much money we need in total in our emergency fund, the final thing we need to do is build our savings plan for how we're going to fund that emergency fund. So in this example, to fund six months worth of basic living expenses, we need $15,000. How much money do we need to start saving today to save up that $15,000? The answer that we need to enter two more rare balls into the calculator. The 1st 1 is, how much do you currently have saved already in emergency funds. So it might be zero. Ah, but I'm gonna say this. They already have. Right now, I have, ah, $1250 set aside inside emergency fund. And then the other question is, And how maney months would you like your emergency fund to be fully funded? So if any savings goal, we need to be very specific on the end date, because that directly impacts how much we need to start saving right now. So, yeah, would be nice to have $15,000 in an emergency fund tomorrow. But for most people, that's very unrealistic to think that we're going to get, you know, 15 grand, um, in the emergency fund very quickly. This is gonna take, you know, number of months. So let's say you want to stretch this goal over a year. So in 12 months from now, Ah, you would like to have your full six months emergency fund set up, and we're only starting with $1250. So we're gonna say 12 months from that, we'd like that. And then this highlighted cell here is gonna tell us how much we need to save each month. So to get $15,000 in an emergency fund which covers six months worth of expenses having only $1250 in there to start have that accomplished in 12 months would require you to save $1145 per month over the next 12 months. 6. Wrap up and review: your emergency fund is the foundation on which the rest of your financial plan will be built. For that reason, you must have an emergency fund in place. Many experts recommend 3 to 6 months worth of living expenses in an emergency fund. Start by making a list of all of the expenses you would not be willing to cut even in a financial emergency. Those are the expenses you want your emergency fund to cover, then track several months worth of spending to determine how much you typically spend on these items. Then the final decision that you need to make is how many months you would like your emergency fund that last, which will be mainly determined by how secure your income is and other personal circumstances, like if you have a spouse who works or if you have any other type of income. An emergency fund should come before any other financial or saving school with the one exception of the first goal you need to accomplish is making the minimum payments and all your debts. Once you're making those minimum payments before you start even getting aggressive on debt before you start saving for retirement aggressively or investing. Having an emergency fund is the first step. So in this video, we have shown you how much How do you determine how much you'll need inside that emergency fund and as well, how much you're gonna need to start saving starting today to achieve your goal of fully funded emergency fund. So I hope you've enjoyed this class. Please share with other classmates. You know what you thought about this this exercise? Were you surprised by how much money you would need? An emergency fund? Do you feel like that is an obtainable number Share with everybody else in the class because they're going to the same struggles you are. And if you are able to start discussing and sharing ideas with each other, we're all here to help each other. So hope you enjoyed this class and we will see you guys again next time.