We Need to Talk About Emergency Funds. How Three Experts Are Reframing Their Savings Strategies

Presented by NextUp
A photo to accompany a story about emergency funds Courtesy of Delyanne Barros, Krystal Tood, and K. Kenneth Davis
Left to right: Delyanne Barros, Krystal Todd, K. Kenneth Davis
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Emergency funds are out. Solution funds are in. 

At least for Delyanne Barros, an attorney turned millionaire money coach who teaches people, especially Latinas, the importance of investing and building wealth. 

Saving up an emergency fund has long been a personal finance building block, with experts recommending that people keep anywhere from 3 to 12 months of expenses in a liquid high-yield savings account. But rather than just being for emergencies, Barros wants people to see savings as a solution to any situation.

“I’m reframing the term emergency fund. It’s incredibly triggering, and fear is rarely a good motivator,” Barros said. “Instead, I’ll be calling it a solution fund because that’s how I see money. It’s a problem solver. A stress reducer. A convenience provider.”

A savings fund, for example, can enable you to move on from a job or a living situation that isn’t serving you. It can be the seed of a new business or a side hustle. It can allow you to take care of your family and friends when they need you. 

“Saving is usually associated with something negative. Something is going wrong, and you have enough money to right the unexpected wrong,” Barros said. “But I’m trying to turn that on its head. Saving should be looked at as something positive.”

That is often easier said than done. Shifting your mindset on money can be tough if you’re living paycheck to paycheck and struggling to save. Barros and other experts acknowledge it’s a privilege to get to the point in your financial journey where you can save at all — let alone have a positive mindset on saving or money in general.

“It’s a privilege to get to that point,” said K. Kenneth Davis, a financial educator known as The Trans Capitalist. For people who don’t have enough to save, “the name doesn’t change their situation,” he said.

That rings especially true for the LGBTQ+ community, members of which are more likely to face financial setbacks and trauma, said Davis. The poverty rate for transgender people in the U.S. is nearly double that of cisgender straight adults experience, according to a 2019 study by the University of California, Los Angeles. Poverty rates are even higher for transgender people of color.

Whether you prefer to think of it as an emergency fund or a solution fund, the important thing is to figure out your best strategy to save for the unexpected.

Why You Should Focus on Your Savings Right Now

It’s always a good time to focus on your goals and explore ways to start saving, but it’s especially important now that there could be an economic downturn around the corner.

Historical indicators of a recession have been flashing red in recent months, and experts warn that rising interest rates, in combination with high inflation, could lead to one. The latest inflation data showed that prices in September were 8.2% higher than they were a year ago — despite the Federal Reserve’s aggressive interest rate hikes designed to slow it down. 

Many economists expect the Fed to raise interest rates again in November to keep fighting inflation, which could eventually lead to a rise in unemployment and fewer job opportunities. The Fed predicts the unemployment rate may reach up to 4.4% and remain high through 2025. For context, an high unemployment rate could put nearly 1.2 million Americans out of work

One of the best things you can do to prepare for an unpredictable future is to build an emergency or a solution fund — ideally made up of a few months’ worth of expenses if possible. If that feels out of reach, start small.​​ Financial advisors say it is important to put something aside regularly — even if it’s just a few dollars a week. Anything is better than nothing at all.

Experts recommend keeping your funds in a high-yield savings account for easy access when you need it. It also pays to keep your savings in the right place. Interest rates on high-yield savings accounts are the highest they’ve been in years, with some reaching as high as 3% APY. 

Expert Tips to Start Saving 

Self-Reflect and Change Your Money Script

Before making a budget or setting any financial goals, self-reflect on how you think about money. You may have beliefs about money that you’re entirely unaware of — which experts call money scripts. 

A negative money script can affect your financial situation and how you feel, shaping your actions and eventually, the results you get. It can create anxiety and fear-based limitations around money, which can thrust you into a vicious never-ending cycle, said Davis. 

It’s crucial, he said, to spend time unlearning any negative thinking to reach your financial goals. The first step to take is to get to know yourself better, and that, of course, takes time.

“Money and psychology are intertwined, and it’s hard to untangle it,” Davis said. 

Consider journaling about your relationship with money or speaking to a therapist to help break down your fears. It could help you figure out negative money habits and the thoughts that create those. 

“Go deeper and get a therapist,” Davis said. 

Start with a Budget and Goals

The foundation of your emergency fund is being able to pay your necessary expenses. So the first step is putting together a budget, finding out which expenses are absolutely necessary, and separating your needs from your wants. Think rent versus a recurring subscription; you need to pay your rent, but you don’t need to have Netflix. 

“While things are essential for a balanced life, they are not needed and can help you achieve your three to six months savings goal faster,” said Krystal Todd, a CPA and popular personal finance figure on TikTok.

Get to the bare minimum of your expenses and then calculate how long it would take you to save that amount based on how much money you currently spend. Barros recommends multiplying it by three to establish your first savings goal. Barros said the following step is to add up the cost of your wants and keep that separate from your necessary expenditures. Some desires, like your gym membership, may be recurring, while some will be one-time expenses. 

Take Baby Steps

After you have a budget and goals, it’s time to start saving. There are two ways to do this: cut back on spending for a few months until your fund is established or find ways to boost your income sources. Consider freelancing or starting a side hustle. 

“One of my favorite recommendations is reaching out to your favorite creators and pitching yourself as a virtual assistant,” Barros said. “Another way to bring in extra cash is house or dog sitting. Those are always in high demand and are pretty recession-proof.”

If you don’t have an emergency fund, try to start saving enough to cover at least three months to six months of expenses. During a difficult time in your life, it’s OK to work slowly but surely toward a modest goal to help you reach the other side on solid footing. Davis recommends trying to save $1 a week and increasing that amount over time — to $5 or $10 a week if possible.

“If you’re able to set aside $100 a month, that’s a good start,” he said. “Start with bite-sized pieces.”

An emergency fund is a solid start, but you may need more cushion. Your money isn’t going as far as it used to due to rising costs, stagnant wages, and a recession on the horizon. If you already have a well-stocked emergency fund, consider increasing your contributions to get ahead of the curve. 

“The goal is to change our mindset from ‘day-to-day’ to more forward-thinking,” Todd said. “If we want to be insulated like most successful people and businesses, we must move accordingly by being active in our finances.”

Automate Your Savings 

Next, you’ll want to automate your savings. It’ll help guarantee that you’re sticking to your savings goal. Set up a recurring transfer from your checking to your savings on the same day you’re paid. Depending on your bank, you may be able to set up your transfers as weekly, bi-weekly, or monthly. 

“Over time, you’ll become accustomed to these transfers and adjust your spending accordingly,” Barros said. And when it comes time to spend your savings, don’t feel guilty. That’s what it’s there for. 

“You saved this money so you could use it,” Barros said. “Money is meant to provide solutions, and using it does not mean you failed in any way.”