Building Your Emergency Fund: Tailored Strategies for Every Life Stage
Discover how you can build your emergency fund based on these 6 profiles.
I completed my emergency funds in 2020, the same year I almost depleted it during the pandemic.
Those were three months of no active income when I panic a little every time I look at my account balance after paying my bills.
To save my peace of mind, I explored side hustles, improved my skills, and finally got clients as a financial advisor and a freelance writer. I placed fifty percent of my earnings into my emergency funds until I reached my goal.
But that was my experience as a young adult with no responsibilities other than myself.
As a financial coach, I understand that personal finance is a personal experience. Each life stage demands a unique approach to building an emergency fund. I can categorize them into six profiles.
Let’s explore each profile — their financial challenges and unveil strategies to establish an emergency fund that aligns with their unique situation.
The Fresh Graduate: Setting the Foundation
Fresh graduates are in the easiest stage to build an emergency fund because they have fewer obligations. They live in their parent’s house and have no children to support.
- Obligations: Basic living expenses such as daily food allowance and transport to work. If they’re still applying for jobs, they borrow money for food or transport to get to their hiring interviews.
- Common Obstacles: Lack of financial literacy and limited income with their entry-level salary. Though not all, more youngsters splurge on instant gratification through shopping and traveling.
Tailored Strategies for Fresh Graduates:
Let’s get this out of the way: An entry-level income is not an excuse not to build your emergency funds.
Start by educating yourselves through personal finance books. When I was a fresh graduate, personal finance books were a game-changer for me. It helped me expand my mindset on money management.
Aside from books, there’s now an overflowing resource of financial education online. Do lots of research and practice discernment.
Then, start small by dedicating a portion of your income toward your emergency fund. We all started young at some point — so work on building your career first while living a modest lifestyle.
As you get promotions, bonuses, or better yet, better opportunities, gradually increase contributions as your income grows.
The Young Breadwinner: Balancing Responsibilities
The young breadwinners are in the toughest position to build their emergency funds because they prioritize family obligations over their own future.
Whether by choice or a call of obligation, it‘s the same — young breadwinners feel guilty when they spend money on themselves. Oftentimes even delaying their dreams.
- Obligations: As the financial backbone of the family. They manage household expenses, the education costs of siblings or their own children, and unexpected medical bills.
- Common Obstacles: They can’t afford to fail. Keeping the balance between providing for others’ and carrying their own dreams feels like a tightrope. Their income is not enough to shoulder their expenses. The worst-case scenario may lead to a pile of debt.
Tailored Strategies for Young Breadwinners:
Money management for young breadwinners isn’t just balancing the cash flow with numbers. It also anchors heavily on emotions — from the mental exhaustion between carrying the burden and providing for the family.
Start with setting clear financial boundaries especially involving family members. Look out for scenarios where you feel taken for granted and discuss these financial struggles with family. Believe that you can do hard things, like seeking help.
Next, use your skills to increase your income. Prioritize money opportunities that lie on your strengths. You can allocate extra income to your emergency fund once you earn more.
If you find yourself doing all these and still get no results, keep going and experiment more. What other choice do you have? It’s either staying the same or changing your situation.
The Minimum Wage Worker: Making Every Penny Count
Earning a minimum wage often means living paycheck to paycheck. They focus their energy on working hard on low-lying fruits.
- Obligations: Basic living expenses for themselves and their family
- Common obstacles: Amidst tight budgets and basic living expenses, setting aside money for emergencies can feel like an unattainable goal.
Tailored Strategy for Minimum Wage Workers:
I earned $5 for a 3,000-word article when I started as a freelancer. That’s equivalent to 2 full days’ worth of work. The problem was a lack of skills and knowledge to market my potential skills.
Find workshops and training to develop new skills and do research on basic marketing. However, no matter how hard you toil, the scarcity mindset remains the major culprit.
Sometimes, people aren’t even aware that they can receive more. Start with personal development books to expand your mindset. I call that positive brainwashing.
Then, you can start creating better money beliefs. You’re now more capable and knowledgeable about building your emergency funds.
The Parent: Securing Family’s Future
Parents are at the stage of their lives where they’re becoming stable in their careers, earning a mid- to high-range income. While they know how important setting up an emergency fund is, they are always on more urgent things.
- Obligations: Far from living a single life, a parent has a long list of responsibilities for financial preparation, such as their children’s education, family healthcare, mortgage, and other real property assets.
- Common Obstacles: There’s a seemingly endless list of more urgent responsibilities.
Tailored Strategy for Parents:
Let’s hold ourselves accountable for a while here. These obstacles could be excuses. Maybe you kept delaying your emergency funds because you never really needed it. There are better uses for your money than letting it sit in the bank.
Or maybe, no matter how hard you restart building your emergency funds, it gets used up. Maybe you’ve taken too many obligations.
Start creating a sense of urgency and prioritize emergency funds covering personal and family needs. Involve your children in age-appropriate discussions about financial planning. Financial education always starts at home.
The Single & Independent: Empowering Yourself
Living an independent life has that sweet taste of freedom leaving much room to take risks. You can afford to be adventurous and pursue your passions.
Independent individuals are the quickest to build their emergency funds because they have only themselves to provide for.
- Obligations: Personal living expenses, lifestyle choices, voluntary family contribution
- Common Obstacles: Balancing personal desires with financial security.
Tailored Strategy for the Single & Independent:
First, check your lifestyle. If it doesn’t match your cash flow — meaning you spend more than you earn — you could face problems in the long term.
Prioritize building your emergency funds now that you’re earning well and have no responsibilities. Once you’ve set up your emergency funds, you can move on to short-term savings and indulge in things you enjoy and love.
If you’re struggling to limit your expenses, you can start the habit of budgeting. When you receive your income, transfer a fixed amount automatically to your emergency fund. Track your expenses using a budgeting app and see which categories you can adjust.
The Self-Employed & Businessmen: Managing Variable Income
Self-employed individuals and businessmen don’t have a fixed amount of income coming in every month. To create a stable emergency fund, income fluctuations require careful management of unpredictable earnings.
- Obligations: Aside from basic living expenses and lifestyle choices, they also have business expenses and taxes to think of
- Common Obstacles: Inconsistent income and planning for tax liabilities
Tailored Strategy for Self-Employed & Businessmen:
The thing with variable income is that, sometimes, income skyrockets, and sometimes it plunges. Stabilize variable income by setting aside a percentage for emergencies.
And when earning at your peak seasons, create separate funds for taxes to prevent financial stress during tax season.
Conclusion: Your Path to Financial Resilience
There may be a rule of thumb of saving up between 3x-6x of your monthly expenses. But there’s no one-size-fits-all advice on how to build an emergency fund.
Whether you’re a fresh graduate or a seasoned freelancer, your journey to financial resilience starts with an emergency fund crafted to suit your life stage.
Preparing a financial plan must be tailored to your income range, obligations, and obstacles. Seek a financial coach to help you overcome these mental obstacles. Getting a trusted advisor will remove all your money biases and hold you accountable for your money habits.
Remember, financial security isn’t a destination — it’s a journey you navigate with purpose and preparation ❤
Disclaimer: The information presented here is based on general situations and may not be applicable to your specific circumstances. Before making any financial decisions, it is recommended to consult with a qualified financial advisor who can take into account your individual financial situation, goals, and risk tolerance.
The author and publisher of this article disclaim any liability for any financial loss or damage arising from reliance on the information provided. Always conduct thorough research and seek professional guidance before making any financial choices.
