Module 6: Emergency Funds & Savings

Building Your Financial Safety Net

Introduction

Welcome to Module 6! Let's talk about one of the most important parts of your financial foundation: your emergency fund.

Here's a sobering fact: 40% of Americans couldn't cover a $400 emergency without borrowing money or selling something. That's not a personal failure – it's a systemic problem. But you're going to be part of the solution.

An emergency fund is your buffer between you and debt. It's what keeps a car repair from becoming a credit card debt. It's what lets you sleep at night knowing you can handle whatever life throws at you.

In this module, we'll cover:

Why emergency funds matter (more than you think)
How much you actually need
Where to keep your emergency fund
How to build it, even on a tight budget
The psychology of not touching it
Advanced savings strategies

Think of your emergency fund as financial insurance you create for yourself. Let's build yours!

Part 1: Why Emergency Funds Matter

The Reality of Financial Emergencies

Life doesn't care about your budget. Things break. People get sick. Jobs get lost. Cars need repairs. And it all happens at the worst possible time.

Common financial emergencies:

Medical expenses (even with insurance)
Car repairs or replacement
Home repairs (roof, HVAC, plumbing)
Job loss or reduced hours
Unexpected travel (family emergency)
Veterinary bills
Major appliance failure
Legal issues
Identity theft recovery

Without an emergency fund, you have three bad options:

Put it on a credit card (high interest debt)
Take out a personal loan (more debt)
Withdraw from retirement accounts (penalties + taxes + lost growth)

With an emergency fund, you have one good option:

Pay cash and move on with life

The Real Cost of No Emergency Fund

Let's look at a real scenario:

Sarah's Story:

Car repair: $1,200
No emergency fund
Puts it on credit card (20% APR)
Pays minimum ($36/month)
Takes 4 years to pay off
Total cost: $1,733 ($533 in interest)

vs.

Jake's Story:

Same $1,200 car repair
Has emergency fund
Pays cash
Replaces the $1,200 over next 6 months
Total cost: $1,200 ($0 in interest)

The difference: $533 and 3.5 years of stress

Emergency Fund Benefits

Beyond avoiding debt, emergency funds provide:

✅ Peace of mind – sleep better knowing you're covered
✅ Reduced stress – money problems cause major anxiety
✅ Better decisions – not forced to take the first job offer or stay in bad situations
✅ Negotiating power – can walk away from bad deals
✅ Relationship harmony – money fights are a top cause of divorce
✅ Protection from debt – break the paycheck-to-paycheck cycle
✅ Momentum – achieving this goal builds confidence for bigger goals

💡 Exercise 6.1: Your Emergency Fund Reality Check

Have you experienced a financial emergency in the last 2 years?

☐ Yes ☐ No

If yes, what was it and how much did it cost?

How did you pay for it?

☐ Savings ☐ Credit card ☐ Loan ☐ Borrowed from family/friends ☐ Other: _____

How did that experience feel?

If you'd had an emergency fund, how would things have been different?

Part 2: How Much Do You Need?

This is the million-dollar question. The answer: it depends on YOUR situation.

The Three Levels of Emergency Funds

Level 1: Starter Emergency Fund

Amount: $500 - $1,000
Purpose: Cover small emergencies (car repair, medical copay, urgent home fix)
Timeline: Build ASAP (1-3 months)
Priority: Build this BEFORE aggressively paying off debt

Why start here: Most emergencies are under $1,000. This prevents going into debt for common issues.

Level 2: Basic Emergency Fund

Amount: 3 months of essential expenses
Purpose: Handle moderate emergencies, short job loss, major repairs
Timeline: Build over 6-12 months
Priority: After paying off high-interest debt

Why 3 months: Covers most job searches and significant life disruptions

Level 3: Full Emergency Fund

Amount: 6 months of essential expenses
Purpose: Handle extended job loss, major life changes, multiple emergencies
Timeline: Build over 1-2 years
Priority: After Level 2 is complete

Why 6 months: Provides substantial security and peace of mind

Factors That Affect Your Number

You might need MORE than 6 months if:

☐ Single income household
☐ Self-employed or irregular income
☐ Work in volatile industry
☐ Sole breadwinner
☐ Health issues (chronic conditions, high medical costs)
☐ Older home/car (more likely to need repairs)
☐ Multiple dependents

You might be fine with 3 months if:

☐ Dual income household
☐ Very stable job (government, tenured professor)
☐ Strong family support system
☐ Minimal expenses
☐ Easy to find work in your field
☐ Disability insurance and other safety nets

💡 Exercise 6.2: Calculate Your Emergency Fund Goal

Step 1: Calculate your essential monthly expenses

These are "must-pay" bills if you lost your job:

Expense	Monthly Amount
Rent/Mortgage	$______
Utilities (electric, gas, water)	$______
Groceries (basic)	$______
Transportation (car payment, insurance, gas)	$______
Insurance (health, life)	$______
Minimum debt payments	$______
Phone	$______
Basic internet	$______
Childcare (if needed for work)	$______
Pet care (essential only)	$______
Other essential: _________	$______
TOTAL ESSENTIAL MONTHLY EXPENSES	$______

Note: This isn't your regular budget – it's bare-bones survival mode.

Step 2: Determine your emergency fund target

Essential monthly expenses: $__________

My Emergency Fund Goals:

Level 1 (Starter):
☐ $500 OR ☐ $1,000

Level 2 (Basic):
Essential expenses × 3 = $__________ × 3 = $__________

Level 3 (Full):
Essential expenses × 6 = $__________ × 6 = $__________

Step 3: Consider your risk factors

Based on the factors above, my ideal emergency fund is:

☐ 3 months ($)
☐ 4 months ($)
☐ 5 months ($)
☐ 6 months ($)
☐ 9 months ($)
☐ 12 months ($)

My target: $__________

Step 4: Current savings status

Amount currently saved for emergencies: $__________

Gap to close:

To reach Level 1: $__________
To reach Level 2: $__________
To reach Level 3: $__________

Part 3: Where to Keep Your Emergency Fund

Your emergency fund needs to be accessible but not TOO accessible. Here's where to keep it.

The Three Requirements

Your emergency fund account should be:

1. Liquid – access money within 1-3 days
2. Safe – FDIC insured, no risk of losing value
3. Separate – not mixed with spending money

Best Options for Emergency Funds

Option 1: High-Yield Savings Account (BEST for most people)

Pros:

✅ Earns 4-5% interest (as of 2024-2025)
✅ FDIC insured
✅ Easy to access (1-2 day transfer)
✅ Not TOO easy (prevents impulse spending)
✅ Keeps up with inflation better than regular savings

Cons:

❌ Not instant access
❌ Interest rates fluctuate

Recommended accounts:

Ally Bank
Marcus by Goldman Sachs
Capital One 360
Discover Savings
American Express Personal Savings

Best for: Most people; ideal balance of accessibility and growth

Option 2: Money Market Account

Pros:

✅ Similar rates to high-yield savings (4-5%)
✅ FDIC insured
✅ May include check-writing or debit card
✅ Good for larger balances

Cons:

❌ Often requires higher minimum balance
❌ May have monthly fees

Best for: Larger emergency funds ($20K+)

Option 3: Traditional Savings Account at Your Bank

Pros:

✅ Convenient if you already bank there
✅ Immediate transfer to checking
✅ FDIC insured

Cons:

❌ Extremely low interest (0.01-0.05%)
❌ Might be too accessible (temptation to dip into it)

Best for: Your starter fund while you open a high-yield account

Option 4: CD Ladder (Advanced Strategy)

How it works:

Divide emergency fund into multiple CDs with staggered maturity dates
Example: 3-month, 6-month, 9-month, 12-month CDs
As each matures, reinvest in 12-month CD
Always have one maturing every 3 months

Pros:

✅ Slightly higher interest rates
✅ Disciplined saving

Cons:

❌ Early withdrawal penalties
❌ More complex to manage
❌ Not truly liquid

Best for: Part of a large emergency fund (6+ months), not your only emergency savings

Where NOT to Keep Your Emergency Fund

❌ Regular checking account – too easy to spend
❌ Under the mattress – no growth, theft risk
❌ Stocks/investments – not safe, value fluctuates
❌ Retirement accounts – penalties and taxes for withdrawal
❌ Crypto – extremely volatile, not emergency-appropriate

💡 Exercise 6.3: Choose Your Emergency Fund Home

Where I'll keep my emergency fund:

Primary account:
Bank: _______________
Account type: ☐ High-yield savings ☐ Money market ☐ Traditional savings
Interest rate: %
Minimum balance: $__

Action items:

☐ Research high-yield savings accounts (if I don't have one)

☐ Open new account (if needed)

☐ Transfer existing emergency money to proper account

☐ Set up account nickname: "Emergency Fund - Do Not Touch"

☐ Remove debit card for this account (to prevent easy access)

☐ Link to checking for transfers only

Part 4: Building Your Emergency Fund

Now for the practical part – actually saving the money.

The Build Strategy

Phase 1: Quick Start (Weeks 1-4)

Get to $500 as fast as possible. This is sprint mode.

Tactics:

Sell items you don't need (Facebook Marketplace, OfferUp, eBay)
Extra hours/overtime at work
Side gigs (food delivery, rideshare, freelance)
Hold a garage sale
Reduce spending to bare minimum for one month
Use windfall money (tax refund, gift, bonus)

Goal: $500 in the bank within 1 month

Phase 2: Steady Build (Months 2-12)

Build your Level 2 fund through consistent saving.

Tactics:

Automatic transfer every payday
Save any "extra" money (bonuses, gifts, tax refunds)
Allocate raise or promotion to savings
Cut one or two non-essential expenses
Redirect debt payments (after payoff) to savings

Goal: Reach 3 months expenses within 12 months

Phase 3: Complete (Months 12-24)

Finish building to your full target.

Tactics:

Continue automatic transfers
Increase savings rate as income grows
Apply any debt payoff money to emergency fund
Side income goes to savings
Challenge yourself with no-spend months

Goal: Reach 6 months (or your target) within 24 months

How Much to Save Each Month

Let's make this concrete.

Example 1: Building starter fund

Goal: $1,000
Timeline: 2 months
Needed: $500/month

Example 2: Building Level 2 fund

Essential monthly expenses: $2,500
Goal: $2,500 × 3 = $7,500
Timeline: 12 months
Already have: $1,000
Gap: $6,500
Needed: $542/month

Example 3: Building Level 3 fund

Essential monthly expenses: $3,000
Goal: $3,000 × 6 = $18,000
Timeline: 24 months
Already have: $7,500
Gap: $10,500
Needed: $438/month

💡 Exercise 6.4: Your Emergency Fund Building Plan

My current situation:

Emergency fund goal: $__________
Currently saved: $__________
Gap to close: $__________

Phase 1: Starter Fund (if needed)

☐ I already have $500-$1,000 (skip to Phase 2)

☐ I need to build starter fund

Quick money tactics I'll use:

☐ Sell items: _______________ (estimated: $_______)
☐ Extra work hours (estimated: $_______)
☐ Side gig: _______________ (estimated: $_______)
☐ Reduce spending (estimated: $_______)
☐ Other: _______________ (estimated: $_______)

Target completion date for $500-$1,000: _______________

Phase 2: Building to 3 Months

Goal: $__________
Timeline: _______ months
Monthly savings needed: $__________

Where this money will come from:

Source	Monthly Amount
Automatic transfer from each paycheck	$______
Reduce spending on: _________	$______
Side income: _________	$______
Extra: _________	$______
TOTAL	$______

Target completion date: _______________

Phase 3: Building to Full Fund (if applicable)

Goal: $__________
Timeline: _______ months
Monthly savings needed: $__________

Plan: (Will revisit after Phase 2 is complete)

Part 5: Automating Your Savings

The secret to consistent saving: automation. Set it up once, then forget about it.

The Automation Blueprint

Step 1: Calculate your per-paycheck amount

Monthly savings goal: $__________
Pay frequency: ☐ Weekly (× 52 ÷ 12) ☐ Bi-weekly (× 26 ÷ 12) ☐ Monthly (× 1)

Per-paycheck savings: $__________

Step 2: Set up automatic transfer

Scheduled: The day after payday
Amount: Your per-paycheck savings
From: Primary checking
To: Emergency fund savings

Why day after payday: Money transfers before you get used to having it

Step 3: Make it invisible

Don't include emergency fund balance in your "available money" thinking
Remove the account from primary view in banking app if possible
Think of it as money that doesn't exist

Step 4: Increase automatically

When you get a raise, increase savings by 50% of the raise amount
When you pay off a debt, redirect that payment to savings
Annual review: increase savings by inflation amount (3-4%)

💡 Exercise 6.5: Set Up Your Automation

My automatic savings plan:

Per-paycheck savings amount: $__________

Transfer schedule:

Day: _______ (day after payday)
Frequency: ☐ Weekly ☐ Bi-weekly ☐ Monthly

Setup checklist:

☐ Log into bank account

☐ Navigate to automatic transfers

☐ Set up recurring transfer:

From checking to emergency fund
Amount: $_______
Starting date: _______
Frequency: _______

☐ Confirm first transfer is scheduled

☐ Set calendar reminder to verify transfer happened

☐ Set monthly reminder to review balance

Part 6: The Psychology of Not Touching It

Building an emergency fund is hard. NOT spending it is harder.

What Counts as an Emergency?

Real emergencies (use the fund):

✅ Job loss or reduced income
✅ Major car repair needed for work
✅ Medical emergency or large medical bill
✅ Essential home repair (heat, water, roof)
✅ Emergency travel (family crisis)
✅ Urgent pet medical care
✅ Unexpected legal fees (unavoidable)

NOT emergencies (find another way):

❌ Sale on something you want
❌ Vacation (save separately)
❌ Holiday or birthday gifts
❌ Upgrading something that still works
❌ Impulse purchases
❌ Covering overspending in budget
❌ "Treating yourself"
❌ Helping others when you can't afford to

The Replacement Rule

If you use your emergency fund, immediately prioritize rebuilding it.

Example:

Emergency fund: $5,000
Use $1,200 for car repair
New balance: $3,800
Immediately redirect savings to rebuild to $5,000 before other goals

Why this matters: An incomplete emergency fund can't do its job. You might need it again soon.

Psychological Tricks to Protect Your Fund

Trick #1: Name it something serious

"Emergency Fund" not "Savings"
"Do Not Touch Except Crisis"
"Job Loss Protection Fund"

Trick #2: Make it slightly inconvenient

Different bank from checking
No debit card
1-2 day transfer time

Trick #3: Track it visually

Graph showing progress
Thermometer on fridge
Spreadsheet you update

Trick #4: Remember the feeling

Write down how stressed you were during last financial emergency
Post it near your emergency fund statement
Read before any non-emergency withdrawal

Trick #5: Have a separate "fun money" fund

Small fund for guilt-free spending
Prevents raiding emergency fund

💡 Exercise 6.6: Protect Your Emergency Fund

My emergency fund protection plan:

What I will use it for:

What I will NOT use it for:

If I'm tempted to use it for a non-emergency, I will:

☐ Wait 48 hours before deciding

☐ Ask myself: "Can I afford this from my regular budget?"

☐ Ask: "Would I borrow money for this?"

☐ Talk to my accountability partner: _______________

☐ Other: _______________________________________________

My accountability:

I will tell _____________ about my emergency fund goal.

I give them permission to call me out if I mention using it for non-emergencies.

Part 7: Advanced Savings Strategies

Once you've mastered the basics, level up your savings game.

Strategy #1: Sinking Funds

What they are: Separate savings for specific non-emergency expenses

Purpose: Prevent "emergencies" that are actually predictable expenses

Examples:

Car maintenance & repairs: $50/month
Home repairs: $100/month
Holiday gifts: $75/month
Annual insurance premiums: $100/month
Clothing: $50/month
Pet care: $30/month

How to implement:

Create sub-accounts or use budgeting app categories
Automatic transfers monthly
Spend guilt-free when the expense comes

Why it works: These expenses won't raid your emergency fund

Strategy #2: Windfall Management

What are windfalls: Unexpected or irregular money

Examples:

Tax refunds
Work bonuses
Gifts
Inheritance
Side gig income
Selling items

The 50/30/20 windfall rule:

50% → Emergency fund / debt payoff
30% → Long-term goals (retirement, house down payment)
20% → Fun / reward yourself

Why this works: You prioritize goals but don't deprive yourself

Strategy #3: The "No-Spend" Challenge

What it is: Commit to not spending money on non-essentials for a period

Variations:

Week-long: Skip all restaurants, entertainment, shopping
Month-long: Only necessities for 30 days
Category-specific: No clothes buying for 3 months

Rules:

Essentials are okay (groceries, bills, gas)
Everything else is off-limits
Bank what you would have spent

Typical savings: $200-500 per no-spend month

Strategy #4: The "Round-Up" Method

What it is: Automatically save the "change" from purchases

How it works:

Buy coffee for $4.50 → rounds to $5.00 → saves $0.50
Adds up over time
Many banks and apps offer this feature

Expect: $50-100/month in savings

Apps that do this:

Acorns
Chime
Bank of America "Keep the Change"
Qapital

Strategy #5: Save Your Raises

How it works:

Get a raise
Increase savings by at least 50% of the raise amount
Live on the other 50%

Example:

Salary: $50,000/year ($4,167/month)
Get 4% raise = $2,000/year ($167/month)
Increase savings by $83/month
Lifestyle improves by $84/month

Why it works: Prevents lifestyle inflation while boosting savings

💡 Exercise 6.7: Choose Your Advanced Strategies

Which strategies will I implement?

☐ Sinking funds for:

___________: $_/month
___________: $_/month
___________: $_/month

☐ Windfall rule: Next windfall I'll split 50/30/20

☐ No-spend challenge: _______ (when/how long)

☐ Round-up saving: Will set up with _______________ (bank/app)

☐ Save raises: My next raise will go _____% to savings

☐ Other strategy: _______________________________________________

Common Mistakes to Avoid

❌ Skipping the emergency fund to pay debt faster
→ Small emergencies will create new debt
❌ Keeping emergency fund in checking
→ Too tempting to spend
❌ Setting unrealistic savings goals
→ Burnout leads to giving up
❌ Using emergency fund for non-emergencies
→ Defeats the purpose; creates bad habits
❌ Not replacing money after using it
→ Leaves you vulnerable to next emergency
❌ Keeping ALL savings in emergency fund
→ No money for goals, fun, or opportunities
❌ Investing emergency fund in stocks
→ Value could drop right when you need it

Key Takeaways

✅ Everyone needs an emergency fund – start with $500-$1,000
✅ Eventually build 3-6 months of essential expenses
✅ Keep it in a high-yield savings account – liquid but separate
✅ Automate your savings to make it effortless
✅ Only use it for true emergencies, not wants or predictable expenses
✅ Immediately replace any money you withdraw
✅ Sinking funds handle predictable "irregular" expenses
✅ Having an emergency fund breaks the debt cycle

Quick Wins You Can Do Right Now

Open a high-yield savings account specifically for emergencies (if you don't have one)
Transfer $50 to your emergency fund today (or whatever you can)
Set up automatic transfer for your next payday
Nickname your account "Emergency Fund - Do Not Touch"
Calculate your full emergency fund goal using Exercise 6.2

Before You Move to Module 7

Make sure you've completed:

✓ Exercise 6.2: Calculated your emergency fund goal
✓ Exercise 6.3: Chose where to keep your emergency fund
✓ Exercise 6.4: Created your building plan
✓ Exercise 6.5: Set up automation
✓ Exercise 6.6: Created protection plan

Reflection Questions

How will having an emergency fund change how you feel about money?

What was your biggest "aha" moment in this module?

What's your #1 commitment to building and protecting your emergency fund?

Looking Ahead

In Module 7, we'll dive into investing – specifically, investing for retirement. Once your emergency fund is built (or building steadily), it's time to make your money work for you through the power of compound interest!

See you in the next module!

Additional Resources

High-Yield Savings Account Comparison:

NerdWallet.com/banking/best-high-yield-online-savings-accounts
Bankrate.com/banking/savings/rates/
DepositAccounts.com

Savings Calculators:

Bankrate.com/banking/savings/savings-goal-calculator/
NerdWallet.com/banking/savings-calculator

Budgeting Apps with Savings Goals:

YNAB (You Need A Budget)
EveryDollar
Qapital
Chime

Further Reading:

"The Simple Path to Wealth" by JL Collins (includes emergency fund philosophy)
"I Will Teach You to Be Rich" by Ramit Sethi (automation strategies)

"An emergency fund is the foundation of financial peace." – Dave Ramsey

"Do not save what is left after spending, but spend what is left after saving." – Warren Buffett

"A budget is telling your money where to go instead of wondering where it went." – John C. Maxwell

Module 6: Emergency Funds & Savings

Building Your Financial Safety Net

Introduction

Welcome to Module 6! Let's talk about one of the most important parts of your financial foundation: your emergency fund.

In this module, we'll cover:

Why emergency funds matter (more than you think)
How much you actually need
Where to keep your emergency fund
How to build it, even on a tight budget
The psychology of not touching it
Advanced savings strategies

Think of your emergency fund as financial insurance you create for yourself. Let's build yours!

Part 1: Why Emergency Funds Matter

The Reality of Financial Emergencies

Life doesn't care about your budget. Things break. People get sick. Jobs get lost. Cars need repairs. And it all happens at the worst possible time.

Common financial emergencies:

Medical expenses (even with insurance)
Car repairs or replacement
Home repairs (roof, HVAC, plumbing)
Job loss or reduced hours
Unexpected travel (family emergency)
Veterinary bills
Major appliance failure
Legal issues
Identity theft recovery

Without an emergency fund, you have three bad options:

Put it on a credit card (high interest debt)
Take out a personal loan (more debt)
Withdraw from retirement accounts (penalties + taxes + lost growth)

With an emergency fund, you have one good option:

Pay cash and move on with life

The Real Cost of No Emergency Fund

Let's look at a real scenario:

Sarah's Story:

Car repair: $1,200
No emergency fund
Puts it on credit card (20% APR)
Pays minimum ($36/month)
Takes 4 years to pay off
Total cost: $1,733 ($533 in interest)

vs.

Jake's Story:

Same $1,200 car repair
Has emergency fund
Pays cash
Replaces the $1,200 over next 6 months
Total cost: $1,200 ($0 in interest)

The difference: $533 and 3.5 years of stress

Emergency Fund Benefits

Beyond avoiding debt, emergency funds provide:

✅ Peace of mind – sleep better knowing you're covered
✅ Reduced stress – money problems cause major anxiety
✅ Better decisions – not forced to take the first job offer or stay in bad situations
✅ Negotiating power – can walk away from bad deals
✅ Relationship harmony – money fights are a top cause of divorce
✅ Protection from debt – break the paycheck-to-paycheck cycle
✅ Momentum – achieving this goal builds confidence for bigger goals

💡 Exercise 6.1: Your Emergency Fund Reality Check

Have you experienced a financial emergency in the last 2 years?

☐ Yes ☐ No

If yes, what was it and how much did it cost?

How did you pay for it?

☐ Savings ☐ Credit card ☐ Loan ☐ Borrowed from family/friends ☐ Other: _____

How did that experience feel?

If you'd had an emergency fund, how would things have been different?

Part 2: How Much Do You Need?

This is the million-dollar question. The answer: it depends on YOUR situation.

The Three Levels of Emergency Funds

Level 1: Starter Emergency Fund

Amount: $500 - $1,000
Purpose: Cover small emergencies (car repair, medical copay, urgent home fix)
Timeline: Build ASAP (1-3 months)
Priority: Build this BEFORE aggressively paying off debt

Why start here: Most emergencies are under $1,000. This prevents going into debt for common issues.

Level 2: Basic Emergency Fund

Amount: 3 months of essential expenses
Purpose: Handle moderate emergencies, short job loss, major repairs
Timeline: Build over 6-12 months
Priority: After paying off high-interest debt

Why 3 months: Covers most job searches and significant life disruptions

Level 3: Full Emergency Fund

Amount: 6 months of essential expenses
Purpose: Handle extended job loss, major life changes, multiple emergencies
Timeline: Build over 1-2 years
Priority: After Level 2 is complete

Why 6 months: Provides substantial security and peace of mind

Factors That Affect Your Number

You might need MORE than 6 months if:

☐ Single income household
☐ Self-employed or irregular income
☐ Work in volatile industry
☐ Sole breadwinner
☐ Health issues (chronic conditions, high medical costs)
☐ Older home/car (more likely to need repairs)
☐ Multiple dependents

You might be fine with 3 months if:

☐ Dual income household
☐ Very stable job (government, tenured professor)
☐ Strong family support system
☐ Minimal expenses
☐ Easy to find work in your field
☐ Disability insurance and other safety nets

💡 Exercise 6.2: Calculate Your Emergency Fund Goal

Step 1: Calculate your essential monthly expenses

These are "must-pay" bills if you lost your job:

Expense	Monthly Amount
Rent/Mortgage	$______
Utilities (electric, gas, water)	$______
Groceries (basic)	$______
Transportation (car payment, insurance, gas)	$______
Insurance (health, life)	$______
Minimum debt payments	$______
Phone	$______
Basic internet	$______
Childcare (if needed for work)	$______
Pet care (essential only)	$______
Other essential: _________	$______
TOTAL ESSENTIAL MONTHLY EXPENSES	$______

Note: This isn't your regular budget – it's bare-bones survival mode.

Step 2: Determine your emergency fund target

Essential monthly expenses: $__________

My Emergency Fund Goals:

Level 1 (Starter):
☐ $500 OR ☐ $1,000

Level 2 (Basic):
Essential expenses × 3 = $__________ × 3 = $__________

Level 3 (Full):
Essential expenses × 6 = $__________ × 6 = $__________

Step 3: Consider your risk factors

Based on the factors above, my ideal emergency fund is:

☐ 3 months ($)
☐ 4 months ($)
☐ 5 months ($)
☐ 6 months ($)
☐ 9 months ($)
☐ 12 months ($)

My target: $__________

Step 4: Current savings status

Amount currently saved for emergencies: $__________

Gap to close:

To reach Level 1: $__________
To reach Level 2: $__________
To reach Level 3: $__________

Part 3: Where to Keep Your Emergency Fund

Your emergency fund needs to be accessible but not TOO accessible. Here's where to keep it.

The Three Requirements

Your emergency fund account should be:

1. Liquid – access money within 1-3 days
2. Safe – FDIC insured, no risk of losing value
3. Separate – not mixed with spending money

Best Options for Emergency Funds

Option 1: High-Yield Savings Account (BEST for most people)

Pros:

✅ Earns 4-5% interest (as of 2024-2025)
✅ FDIC insured
✅ Easy to access (1-2 day transfer)
✅ Not TOO easy (prevents impulse spending)
✅ Keeps up with inflation better than regular savings

Cons:

❌ Not instant access
❌ Interest rates fluctuate

Recommended accounts:

Ally Bank
Marcus by Goldman Sachs
Capital One 360
Discover Savings
American Express Personal Savings

Best for: Most people; ideal balance of accessibility and growth

Option 2: Money Market Account

Pros:

✅ Similar rates to high-yield savings (4-5%)
✅ FDIC insured
✅ May include check-writing or debit card
✅ Good for larger balances

Cons:

❌ Often requires higher minimum balance
❌ May have monthly fees

Best for: Larger emergency funds ($20K+)

Option 3: Traditional Savings Account at Your Bank

Pros:

✅ Convenient if you already bank there
✅ Immediate transfer to checking
✅ FDIC insured

Cons:

❌ Extremely low interest (0.01-0.05%)
❌ Might be too accessible (temptation to dip into it)

Best for: Your starter fund while you open a high-yield account

Option 4: CD Ladder (Advanced Strategy)

How it works:

Divide emergency fund into multiple CDs with staggered maturity dates
Example: 3-month, 6-month, 9-month, 12-month CDs
As each matures, reinvest in 12-month CD
Always have one maturing every 3 months

Pros:

✅ Slightly higher interest rates
✅ Disciplined saving

Cons:

❌ Early withdrawal penalties
❌ More complex to manage
❌ Not truly liquid

Best for: Part of a large emergency fund (6+ months), not your only emergency savings

Where NOT to Keep Your Emergency Fund

❌ Regular checking account – too easy to spend
❌ Under the mattress – no growth, theft risk
❌ Stocks/investments – not safe, value fluctuates
❌ Retirement accounts – penalties and taxes for withdrawal
❌ Crypto – extremely volatile, not emergency-appropriate

💡 Exercise 6.3: Choose Your Emergency Fund Home

Where I'll keep my emergency fund:

Primary account:
Bank: _______________
Account type: ☐ High-yield savings ☐ Money market ☐ Traditional savings
Interest rate: %
Minimum balance: $__

Action items:

☐ Research high-yield savings accounts (if I don't have one)

☐ Open new account (if needed)

☐ Transfer existing emergency money to proper account

☐ Set up account nickname: "Emergency Fund - Do Not Touch"

☐ Remove debit card for this account (to prevent easy access)

☐ Link to checking for transfers only

Part 4: Building Your Emergency Fund

Now for the practical part – actually saving the money.

The Build Strategy

Phase 1: Quick Start (Weeks 1-4)

Get to $500 as fast as possible. This is sprint mode.

Tactics:

Sell items you don't need (Facebook Marketplace, OfferUp, eBay)
Extra hours/overtime at work
Side gigs (food delivery, rideshare, freelance)
Hold a garage sale
Reduce spending to bare minimum for one month
Use windfall money (tax refund, gift, bonus)

Goal: $500 in the bank within 1 month

Phase 2: Steady Build (Months 2-12)

Build your Level 2 fund through consistent saving.

Tactics:

Automatic transfer every payday
Save any "extra" money (bonuses, gifts, tax refunds)
Allocate raise or promotion to savings
Cut one or two non-essential expenses
Redirect debt payments (after payoff) to savings

Goal: Reach 3 months expenses within 12 months

Phase 3: Complete (Months 12-24)

Finish building to your full target.

Tactics:

Continue automatic transfers
Increase savings rate as income grows
Apply any debt payoff money to emergency fund
Side income goes to savings
Challenge yourself with no-spend months

Goal: Reach 6 months (or your target) within 24 months

How Much to Save Each Month

Let's make this concrete.

Example 1: Building starter fund

Goal: $1,000
Timeline: 2 months
Needed: $500/month

Example 2: Building Level 2 fund

Essential monthly expenses: $2,500
Goal: $2,500 × 3 = $7,500
Timeline: 12 months
Already have: $1,000
Gap: $6,500
Needed: $542/month

Example 3: Building Level 3 fund

Essential monthly expenses: $3,000
Goal: $3,000 × 6 = $18,000
Timeline: 24 months
Already have: $7,500
Gap: $10,500
Needed: $438/month

💡 Exercise 6.4: Your Emergency Fund Building Plan

My current situation:

Emergency fund goal: $__________
Currently saved: $__________
Gap to close: $__________

Phase 1: Starter Fund (if needed)

☐ I already have $500-$1,000 (skip to Phase 2)

☐ I need to build starter fund

Quick money tactics I'll use:

☐ Sell items: _______________ (estimated: $_______)
☐ Extra work hours (estimated: $_______)
☐ Side gig: _______________ (estimated: $_______)
☐ Reduce spending (estimated: $_______)
☐ Other: _______________ (estimated: $_______)

Target completion date for $500-$1,000: _______________

Phase 2: Building to 3 Months

Goal: $__________
Timeline: _______ months
Monthly savings needed: $__________

Where this money will come from:

Source	Monthly Amount
Automatic transfer from each paycheck	$______
Reduce spending on: _________	$______
Side income: _________	$______
Extra: _________	$______
TOTAL	$______

Target completion date: _______________

Phase 3: Building to Full Fund (if applicable)

Goal: $__________
Timeline: _______ months
Monthly savings needed: $__________

Plan: (Will revisit after Phase 2 is complete)

Part 5: Automating Your Savings

The secret to consistent saving: automation. Set it up once, then forget about it.

The Automation Blueprint

Step 1: Calculate your per-paycheck amount

Monthly savings goal: $__________
Pay frequency: ☐ Weekly (× 52 ÷ 12) ☐ Bi-weekly (× 26 ÷ 12) ☐ Monthly (× 1)

Per-paycheck savings: $__________

Step 2: Set up automatic transfer

Scheduled: The day after payday
Amount: Your per-paycheck savings
From: Primary checking
To: Emergency fund savings

Why day after payday: Money transfers before you get used to having it

Step 3: Make it invisible

Don't include emergency fund balance in your "available money" thinking
Remove the account from primary view in banking app if possible
Think of it as money that doesn't exist

Step 4: Increase automatically

When you get a raise, increase savings by 50% of the raise amount
When you pay off a debt, redirect that payment to savings
Annual review: increase savings by inflation amount (3-4%)

💡 Exercise 6.5: Set Up Your Automation

My automatic savings plan:

Per-paycheck savings amount: $__________

Transfer schedule:

Day: _______ (day after payday)
Frequency: ☐ Weekly ☐ Bi-weekly ☐ Monthly

Setup checklist:

☐ Log into bank account

☐ Navigate to automatic transfers

☐ Set up recurring transfer:

From checking to emergency fund
Amount: $_______
Starting date: _______
Frequency: _______

☐ Confirm first transfer is scheduled

☐ Set calendar reminder to verify transfer happened

☐ Set monthly reminder to review balance

Part 6: The Psychology of Not Touching It

Building an emergency fund is hard. NOT spending it is harder.

What Counts as an Emergency?

Real emergencies (use the fund):

✅ Job loss or reduced income
✅ Major car repair needed for work
✅ Medical emergency or large medical bill
✅ Essential home repair (heat, water, roof)
✅ Emergency travel (family crisis)
✅ Urgent pet medical care
✅ Unexpected legal fees (unavoidable)

NOT emergencies (find another way):

❌ Sale on something you want
❌ Vacation (save separately)
❌ Holiday or birthday gifts
❌ Upgrading something that still works
❌ Impulse purchases
❌ Covering overspending in budget
❌ "Treating yourself"
❌ Helping others when you can't afford to

The Replacement Rule

If you use your emergency fund, immediately prioritize rebuilding it.

Example:

Emergency fund: $5,000
Use $1,200 for car repair
New balance: $3,800
Immediately redirect savings to rebuild to $5,000 before other goals

Why this matters: An incomplete emergency fund can't do its job. You might need it again soon.

Psychological Tricks to Protect Your Fund

Trick #1: Name it something serious

"Emergency Fund" not "Savings"
"Do Not Touch Except Crisis"
"Job Loss Protection Fund"

Trick #2: Make it slightly inconvenient

Different bank from checking
No debit card
1-2 day transfer time

Trick #3: Track it visually

Graph showing progress
Thermometer on fridge
Spreadsheet you update

Trick #4: Remember the feeling

Write down how stressed you were during last financial emergency
Post it near your emergency fund statement
Read before any non-emergency withdrawal

Trick #5: Have a separate "fun money" fund

Small fund for guilt-free spending
Prevents raiding emergency fund

💡 Exercise 6.6: Protect Your Emergency Fund

My emergency fund protection plan:

What I will use it for:

What I will NOT use it for:

If I'm tempted to use it for a non-emergency, I will:

☐ Wait 48 hours before deciding

☐ Ask myself: "Can I afford this from my regular budget?"

☐ Ask: "Would I borrow money for this?"

☐ Talk to my accountability partner: _______________

☐ Other: _______________________________________________

My accountability:

I will tell _____________ about my emergency fund goal.

I give them permission to call me out if I mention using it for non-emergencies.

Part 7: Advanced Savings Strategies

Once you've mastered the basics, level up your savings game.

Strategy #1: Sinking Funds

What they are: Separate savings for specific non-emergency expenses

Purpose: Prevent "emergencies" that are actually predictable expenses

Examples:

Car maintenance & repairs: $50/month
Home repairs: $100/month
Holiday gifts: $75/month
Annual insurance premiums: $100/month
Clothing: $50/month
Pet care: $30/month

How to implement:

Create sub-accounts or use budgeting app categories
Automatic transfers monthly
Spend guilt-free when the expense comes

Why it works: These expenses won't raid your emergency fund

Strategy #2: Windfall Management

What are windfalls: Unexpected or irregular money

Examples:

Tax refunds
Work bonuses
Gifts
Inheritance
Side gig income
Selling items

The 50/30/20 windfall rule:

50% → Emergency fund / debt payoff
30% → Long-term goals (retirement, house down payment)
20% → Fun / reward yourself

Why this works: You prioritize goals but don't deprive yourself

Strategy #3: The "No-Spend" Challenge

What it is: Commit to not spending money on non-essentials for a period

Variations:

Week-long: Skip all restaurants, entertainment, shopping
Month-long: Only necessities for 30 days
Category-specific: No clothes buying for 3 months

Rules:

Essentials are okay (groceries, bills, gas)
Everything else is off-limits
Bank what you would have spent

Typical savings: $200-500 per no-spend month

Strategy #4: The "Round-Up" Method

What it is: Automatically save the "change" from purchases

How it works:

Buy coffee for $4.50 → rounds to $5.00 → saves $0.50
Adds up over time
Many banks and apps offer this feature

Expect: $50-100/month in savings

Apps that do this:

Acorns
Chime
Bank of America "Keep the Change"
Qapital

Strategy #5: Save Your Raises

How it works:

Get a raise
Increase savings by at least 50% of the raise amount
Live on the other 50%

Example:

Salary: $50,000/year ($4,167/month)
Get 4% raise = $2,000/year ($167/month)
Increase savings by $83/month
Lifestyle improves by $84/month

Why it works: Prevents lifestyle inflation while boosting savings

💡 Exercise 6.7: Choose Your Advanced Strategies

Which strategies will I implement?

☐ Sinking funds for:

___________: $_/month
___________: $_/month
___________: $_/month

☐ Windfall rule: Next windfall I'll split 50/30/20

☐ No-spend challenge: _______ (when/how long)

☐ Round-up saving: Will set up with _______________ (bank/app)

☐ Save raises: My next raise will go _____% to savings

☐ Other strategy: _______________________________________________

Common Mistakes to Avoid

❌ Skipping the emergency fund to pay debt faster
→ Small emergencies will create new debt
❌ Keeping emergency fund in checking
→ Too tempting to spend
❌ Setting unrealistic savings goals
→ Burnout leads to giving up
❌ Using emergency fund for non-emergencies
→ Defeats the purpose; creates bad habits
❌ Not replacing money after using it
→ Leaves you vulnerable to next emergency
❌ Keeping ALL savings in emergency fund
→ No money for goals, fun, or opportunities
❌ Investing emergency fund in stocks
→ Value could drop right when you need it

Key Takeaways

✅ Everyone needs an emergency fund – start with $500-$1,000
✅ Eventually build 3-6 months of essential expenses
✅ Keep it in a high-yield savings account – liquid but separate
✅ Automate your savings to make it effortless
✅ Only use it for true emergencies, not wants or predictable expenses
✅ Immediately replace any money you withdraw
✅ Sinking funds handle predictable "irregular" expenses
✅ Having an emergency fund breaks the debt cycle

Quick Wins You Can Do Right Now

Open a high-yield savings account specifically for emergencies (if you don't have one)
Transfer $50 to your emergency fund today (or whatever you can)
Set up automatic transfer for your next payday
Nickname your account "Emergency Fund - Do Not Touch"
Calculate your full emergency fund goal using Exercise 6.2

Before You Move to Module 7

Make sure you've completed:

✓ Exercise 6.2: Calculated your emergency fund goal
✓ Exercise 6.3: Chose where to keep your emergency fund
✓ Exercise 6.4: Created your building plan
✓ Exercise 6.5: Set up automation
✓ Exercise 6.6: Created protection plan

Reflection Questions

How will having an emergency fund change how you feel about money?

What was your biggest "aha" moment in this module?

What's your #1 commitment to building and protecting your emergency fund?

Looking Ahead

See you in the next module!

Additional Resources

High-Yield Savings Account Comparison:

NerdWallet.com/banking/best-high-yield-online-savings-accounts
Bankrate.com/banking/savings/rates/
DepositAccounts.com

Savings Calculators:

Bankrate.com/banking/savings/savings-goal-calculator/
NerdWallet.com/banking/savings-calculator

Budgeting Apps with Savings Goals:

YNAB (You Need A Budget)
EveryDollar
Qapital
Chime

Further Reading:

"The Simple Path to Wealth" by JL Collins (includes emergency fund philosophy)
"I Will Teach You to Be Rich" by Ramit Sethi (automation strategies)

"An emergency fund is the foundation of financial peace." – Dave Ramsey

"Do not save what is left after spending, but spend what is left after saving." – Warren Buffett

"A budget is telling your money where to go instead of wondering where it went." – John C. Maxwell