Your emergency fund

Introduction

Nest egg, piggy bank, stockpile…all names for that financial must-have even your grandma probably was probably familiar with. What makes it a must-have? Money troubles and the fear of financial uncertainty weigh heavily on the mind! But it doesn’t have to be that way. After all, money is really just there to help you live the most beautiful life possible.

The absolute first thing you should do to be as prepared as possible for unforeseen events such as sudden unemployment, illness, or an accident is to set up an emergency fund, feed it, and keep it safely to the side.

Savings

Make a conscious effort to set aside a certain amount of money for your emergency fund every month. To save, you have to – and it couldn’t get any simpler than this – bring in more than you spend. Is that the case in your life right now? Yes? Great. No? Then our tips that follow will be helpful to you. You’re not really sure? Then the very first thing you should do is get an overview of your financial situation. Note down of all of your monthly income and all of your monthly expenses. Even if this exercise seems annoying and time-consuming…it is worth it! Promise.

Put all the numbers into a fresh Excel spreadsheet and organize them in such a way that you’ll enjoy looking at them. For example, use colors you like instead of red, black, and green, buy yourself a notebook you like and will really want to use, or find yourself an app you can put a budget together in. There are always more and more things out there you can buy.

Your goal

How much money can you save every month? Set up a regular transfer to put aside a certain amount of money until your emergency fund is full. When is that considered done? Ideally, it’s some amount between three and six months of your monthly net salary. So if you net 1500 euros, your emergency fund should, if it’s at all possible, contain 4500 euros. If you support anyone else financially (e.g., your kids, your parents, your partner), it’s better for you to put away six months’ net income.

If your life circumstances have suddenly dictated that you can’t save so much money, now would be an excellent time to take a quiet moment to determine how you can change your income and expenses. How can you earn more money? Can you ask for a pay raise? Are you an independent worker with the ability to adjust your pricing policy? What creative side income opportunities come to mind? Dare to be creative and think outside the box. What could you do right this second to earn more money tomorrow? What do you love? What do you like to do for a living? And how could you use the energy you put into that to make money?

In parallel with this, it’s always beneficial to scrutinize your expenses and reduce them where possible. It’s often pretty easy to start with the small stuff. Can you reduce your cell phone bill? Can you adjust your insurance policy and negotiate better conditions? Are you perhaps paying off a loan that you could refinance to get a lower interest rate?

How much money did you spend on clothing and accessories last time? How much at the hair salon or the nail salon? It’s super important that you’re good to yourself, take care of yourself, and enjoy life! But you still might find opportunities to save money here and there…

Where to put the savings?

The best place is a call deposit account! They’re super easy to open and offer exceptional flexibility. As the name suggests, you can access (call on) your money throughout any given day. The unfortunate thing, though, is that most of these yield 0% interest right now, because interest rates are so incredibly low…combined with the fact that inflation is gnawing away at your savings while they lie there dormant. After all, the emergency fund is for that emergency that hopefully never happens, so it ideally won’t be needed.

Where best not to put it?

Under the pillow or in the shoebox in the closet!

It’s too dangerous to stash your emergency money in the form of cash at home. Even if you have homeowner’s insurance, it only covers you up to a specific upper limit upon a break-in or incident.

Even the good ol’ passbook is not ideal. That’s because access to the balance is generally limited to 2000 euros per month. If the bank does permit higher amounts without prior notice, you might get charged an early withdrawal penalty. That’s not flexible enough in an emergency, as then you’d be paying on top.

Totally inappropriate: investment funds! Stock market prices fluctuate heavily. If they go on the decline, your investment can temporarily lose a lot of value. It will be unfortunate if you need to access the money at just such a moment. With some fund types, such as real estate funds, it’s also difficult and costly to spontaneously sell back shares.

Unfortunately, your checking account is also not the absolute best place. Ideally, this is just where your daily income and expenses should migrate in and out. If your account balance grows because that’s where you’re saving your emergency funds, the increasing risk of eventually going weak and spending the money will creep up on you. ;)

And finally:

If you have to dip into your emergency fund because your car, the washing machine, or your computer breaks down, please make sure you fill it back up as soon as possible. ‘Cause who knows what tomorrow will bring. A lot of wonderful things, for sure. And then you’ll be well prepared for the not-so-wonderful. :)