Episode #6: How to get started saving an emergency fund (aka the F*** you fund)
Today we’re talking about one account that absolutely everybody should have, no exceptions, and that’s your emergency savings account, aka the F you fund.
The concept of having an emergency savings account has been around forever, although, not many of us actually have one, or at least one that’s fully funded in case you need it. This concept is often taught in the form of simply having $1000.00 tucked away in case of emergency, but these days, especially if you live in an expensive area like I do, that simply isn’t enough. $1,000.00 is barely enough to cover an unexpected car repair, let alone give you a safety net and peace of mind if things really start to go sideways.
Emergency Savings vs The F*** You Fund
Essentially, an emergency savings account is money you save set aside and safely earmarked in case of emergency. That’s all well and good, but for a lot of us it can be hard to start saving for something ephemeral like that. An emergency that ‘might’ happen in the future is often much less compelling than the immediate reward of online shopping.
That’s why I like to think of my emergency account as an ‘F you fund’ instead. The key difference between an emergency fund and an F you fund, is that the goal of the F you fund is to allow you the freedom to live life on your own terms, without the crippling fear of immediate financial repercussions. Being able to say F you, and walk away knowing you’re safe and in control financially for a while. Have a new boss who's making your life miserable? You have the freedom to quit and find a new position because you know there’s money in the F you fund to back you up for a while.
While we all know that in theory we should have an emergency account set aside for an ‘emergency’, it’s so freeking hard to get ourselves to save for something bad that might happen. Especially while we’re young. It’s way too easy to stick our heads in the sand, and not believe that we’ll ever lose our job, or experience a recession, or find ourselves living through a global pandemic. The emergency savings account is for emergencies, presumably far in the future that honestly might never happen. The F you fund on the other hand, is rooted in the key idea that if you create your own financial safety net, you’ll be able to sleep peacefully at night knowing that if you don’t want to, you won’t have to take anything from anybody. And THAT is something we can all relate to in the present, because THAT is not a ‘might happen one day’ emergency. Chances are, you might even be putting up with something right now that you wouldn’t be if you had the financial freedom to walk away, and that is the goal. Having an F you fund means that you can feel safe, and not have to worry when you’re faced with a big decision that affects either your happiness or your bank account.
So how do you start creating an F you fund?
There are 4 important steps to creating your FU fund. First, you need to learn how much you spend to maintain your lifestyle. Second, you need to decide how much time you want to buy yourself with your fu fund. Third, you have to decide how you are going to save the money. And fourth, you are going to decide where to save this money. Just 4 steps, and I want to start by saying that there is no one right or wrong way to do this, except that if you’re living in modern times the $1,000.00 fund is outdated and out the window. Overall though, it’s different for everybody, and I’m going to walk you through the things you have to think about and the questions you have to ask yourself to create this individually, for you and your life.
STEP #1: Learn how much your life costs
To do this, we need to create a log of your daily, monthly, and annual expenses. This is not as scary as it sounds, and you have no idea the huge relief you will feel when you simply know this number. If this sounds scary to you, I recommend going back to Episode #2 for a breakdown of the basics of personal finance that will help you with this part of the exercise.
Also, if you’re feeling nervous about your finances and want to be guided through the basics of understanding and making friends with your money, join my free 7 day money icebreaker mini course, linked here.
To start with, open up an excel document or grab a sheet of paper, and start to list all of your fixed costs. These are costs that you must pay to continue to live as well as not screw up your credit by defaulting on loans etc. This list should include things like rent, mortgage payments, utility bills, student loan payments, car insurance, groceries, etc. If you’re having trouble thinking of all these categories, print out your credit card statements from the last year, as well as your bank transactions, and start to create your list based on these. Aside from some cash purchases you may not remember, virtually everything you spend money on should be outlined in these pages.
Next, write a list of your variable expenses. These are things you spend money on that didn’t make it to your fixed expenses list. As you review this, you’ll find that some of these variable expenses are necessary to your life and will have to be moved to the fixed list, while others you’ll be able to identify as luxuries that you enjoy, but could live without if you had to cut down on expenses for a while. This list could include things like haircuts, shopping, subscriptions, takeout coffee, gifts etc. As you make this list, again rather than doing it all by memory, I recommend looking at your credit card statements and bank transactions to see exactly where you’re spending money.
You now need to record what you spend on these categories on a monthly and/or annual basis. Some will be easy, for example your rent you probably know by heart, your insurance payments will probably be clearly recorded on your credit card statements and so on. Some expenses will need to be added up and averaged, for example your grocery bills, or how much you spend eating out each month. Getting monthly averages for these variable costs is fine for this exercise. Some costs will only occur a few times a year, like haircuts, or holidays, so it doesn’t make sense to average them monthly, but you still need to record them to understand your overall annual spending.
Once you have all these costs listed, you now need to add them up to see how much you need to spend on a monthly, and annual basis. I recommend doing this three times. Add up just your fixed costs, just your variable costs, and then both your fixed and variable costs combined. This will give you a good overall understanding of what your life costs.
STEP #2: Decide how much time you want to buy yourself with your F you fund
There really is no one easy rule to follow for this. You need to look at your own life and decide how much time you want to buy yourself. If you’re a self employed, type A worrier like me, then having a year’s worth of savings set aside might be your goal. Maybe you have a highly sought after skill set in a hot industry like technology, and are sure you can land yourself a new job quickly, so you may only need a few months set aside. Maybe you have a great family safety net and only need to set aside enough to cover your own variable expenses for a while. This decision is up to you.
Then you take what you’ve calculated as your monthly costs, and multiply them by the number of months you want to buy yourself, and you have the amount that you need to save up into your emergency account. My only recommendation is that it’s always better to make sure you’re on the safe side, and that even if what you want seems like a huge sum of money, don’t arbitrarily reduce it to seem more attainable. You will get there, especially by following the next step.
STEP #3: Decide how you will start to save this money out of your monthly budget
If you’re already in the enviable position of earning more than you spend, you simply have to divert some of your savings to setting up your F you fund for a while. It’s well worth making a few sacrifices for a while to get this account saved faster though, so you’ll probably have to make some temporary changes to your lifestyle to save a bit more money until your account is fully funded. Now I know I know, this is SO hard to do and SO boring, but again that’s why we’re creating an F you fund, and not just an emergency savings account. Shift your thinking, so you can weigh the price of some of the things you buy against the freedom of never having to work in a crummy situation again. Right? Starting to wrap your head around a quick mindset shift will make saving easier. This is not a budget, you don’t HAVE to cut down on your spending to save money, you’re CHOOSING to temporarily change your spending habits to create the ultimate freedom for yourself.
You already have figured out what you spend money on, so now I want to teach you a little trick to budget without having to form a strict budget. Look at the spending categories you have and pick three guilt free areas where you’re still allowed to spend. We’ll call these your Guilt Free Three. These are things that cost money but bring so much enjoyment to your life that you don’t begrudge yourself spending on them.
With this information in hand you can go through your spending list now, and decide what extra areas you spend money on that can be cut out of your budget for a little while. If lattes at work didn’t make the Guilt Free Three, then swap them out for free coffee at home. If you have five entertainment subscriptions, but really you love keeping up with the most recent series on Netflix because that’s what your office mates watch too, then cancel the other subscriptions. Once you’ve decided what is important to you, it’s going to be so easy to decide what you don’t want to spend money on anymore, and you’ll still get so much enjoyment out of your guilt free three that you’re not going to feel like you’re giving up everything fun in your life! Also remember, this exercise isn’t forever, this is just until you reach the target number you’ve set for your F you fund.
STEP #4: Choose WHERE you’re going to keep this money saved
Now you have to choose a different account to save this money in. There are three rules you should follow for this.
1) You DO NOT leave it sitting in your daily spending account
2) you DO NOT leave it sitting in an account that earns almost no interest
3) you DO NOT tie it up in something like your retirement savings account or stocks, or GIC’s because the entire point is that this money remains easily accessible if you need it.
The goal is to have your F you fund safely tucked away in an account that that you’re not tempted to touch if you want to take yourself on a trip, and that’s working for you by earning a higher percentage of interest than what most banks offer, and that’s always liquid in case you need it.
To choose the right account, do a bit of research by googling something like ‘best bank account interest rates in Canada’ or wherever you’re based. Spend some time doing a bit of reading and look for a savings account that has the highest interest rate you can get, is from a CDIC insured bank (this means your money is insured up to 100k), and that has terms that work for you, namely that doesn’t lock your money in. Some online banks these days are offering the best interest rates, and don’t have terms that lock your money in or penalize you for making transactions. These are constantly changing, but for example at the time that I’m filming this in Canada EQ bank is offering a High Yield Savings account with an interest rate of 1.5%, compared to the interest rate I receive on my other big bank accounts of 0.05% or less. While 1.5% still isn’t much, it’s better than nothing and over time your account will keep slowly accruing and adding money to itself through this interest rate without you having to do any work. That’s pretty awesome. These accounts are always changing though, so keep an eye on the interest in your account over time, and don’t be shy about moving your account to a bank with a better rate. This is why it’s important to make sure you’re not locked in.
And that’s it! You’re done! Once you follow these three, easy, step by step instructions, you will be the proud owner of a fully funded F you fund that lets you sleep well at night, feel more confident at your job, and have the freedom to say F you I’ll be just fine without you if you ever need to. It’s the best freeking feeling.
Linked Resources:
Episode #2 of the HTA Show walks you through some personal finance basics that will help you with this exercise!
Join my free 7 day mini course: The Make Friends With Your Money Icebreaker Challenge to learn more about the basics of managing your personal finances like an actual adult.
The EQ Bank high yield savings account is my current favourite HYSA option for safely storing your FU fund at the time of writing this piece. Check it out here to open your own account!
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