Broke-ish to Functioning: Step 8
Step 8: Build a 6–12 Month Emergency Fund
If you haven't already, read the instructions to the 10 Steps:
Now we are getting into the serious breathing room part of the plan.
At this point, the goal is that your consumer debt is paid off.
Credit cards.
Personal loans.
Car loans.
Whatever debt you were attacking in the earlier steps.
Your mortgage can stay if you have one.
Now that those monthly debt payments are gone, you can start redirecting that money toward savings.
Increase the Automatic Savings from Step 2
Remember Step 2 where you downloaded a savings tracker?
That was your basic automatic savings amount.
Maybe it was $25.
Maybe it was $50.
Maybe it was $100.
Now that your debt is out of the way, this is where you start increasing that amount.
All of that money that used to go toward debt payments?
Start sending a big chunk of it toward your emergency fund instead.
This is where things can really start moving.
The Goal: 6–12 Months of Essential Expenses
Your long-term emergency fund goal is to have enough money saved to cover around 6–12 months of your essential monthly expenses.
The easiest way to figure out your number is to go back to the monthly expenses you calculated in Step 1.
Focus on the things you would absolutely need to keep paying if your income disappeared.
Things like:
Mortgage or rent
Utilities
Insurance
Groceries
Gas
Minimum necessary transportation costs
Medications
Basic household expenses
If your essential monthly expenses are $3,000, then:
6 months = $18,000
12 months = $36,000
That is a big number.
And no, you are not supposed to magically have it tomorrow.
You build it over time.
Why Build Such a Large Emergency Fund?
Because losing your income is stressful enough.
You do not also want to immediately panic about how you are going to pay the mortgage next month.
A larger emergency fund can give you time if something major happens.
Maybe:
You get laid off
You get sick
You are injured and cannot work temporarily
Your spouse loses their job
You need time to find a new position
A major family situation interrupts your income
Instead of immediately reaching for credit cards or taking the first job you can find because the bills are due in five days, you have some room to breathe.
That is what this fund is really buying you:
Time.
This Is Also Where Your Savings Buckets Grow
Now that you are not throwing every extra dollar at debt, you can start building your other savings categories too.
This is where I would start increasing your sinking funds.
These are savings buckets for expenses you know will eventually happen.
They are not really surprises.
You just do not know exactly when they are coming.
Examples:
Car Maintenance Fund
Tires.
Oil changes.
Brakes.
Repairs.
Eventually, the car is going to need something.
Instead of being surprised by a $700 repair bill, slowly build money for it.
House Repair or Improvement Fund
If you own a home, something is always going to need fixing.
Appliances.
Plumbing.
Roof repairs.
Air conditioning.
Random home improvement projects.
Start building that money before the problem happens.
Pet Emergency Fund
Because somehow our animals always manage to need the vet at the most financially inconvenient time possible.
Even putting a small amount away every paycheck can eventually create a nice buffer.
For example, in May my dog Lilly got pyometra......it was $2,500-ish out of pocket and this is something that here some anti biotics you'll be fine. No, she needed emergency surgery or she could have died within days.
$632 at the ER for tests and to tell me if they do it that night it would have been $7,000 and I'd have to take the chance and find someone open the next day they might be cheaper.... but I was also taking the risk of her not making it through the night.
Now, thankfully and this is going to sound terrible.
thankfully, a tree fell through our house, and it was totaled and the insurance paid out some money that was sitting in a HIGH YIELD SAVINGS ACCOUNT... where I could have grabbed that money for Lillys surgery.
But if a tree didn't fall on our house a few months prior... I can let you know we would have had to open up a new credit card, call friends and family and borrow money... or she would have died. We did not have $2500-2600 laying around.
Which had me start panic thinking....oh my god. we have 6 animals.
Birthday and Holiday Fund
Christmas happens every year.
Birthdays happen every year.
They are not emergencies.
We just sometimes budget for them like they came out of nowhere.
Start setting money aside throughout the year instead.
You can also create buckets for:
Vacations
Medical expenses
Car replacement
Home improvements
School expenses
Annual insurance premiums
Technology replacement
Whatever regularly shows up in your life
Name them however you want.
The point is to start preparing for expenses before they happen.
You Do Not Have to Fund Everything Equally
Maybe your emergency fund gets $500 a month.
Your car fund gets $75.
Your pet fund gets $25.
Your holiday fund gets $50.
That is completely fine.
Your priorities will change depending on your life.
The important thing is that your money now has somewhere intentional to go.
You are no longer just reacting every time something happens.
You are planning for it.
This Is Where Financial Stress Starts Changing
Think about how different this feels from the beginning.
At first, an unexpected $300 expense might have meant:
Credit card.
Overdraft.
Borrowing money.
Skipping another bill.
Now?
You have savings.
You have sinking funds.
You have money set aside for the things life regularly throws at you.
That is the goal of all of this.
Not perfection.
Not becoming a millionaire overnight.
Just getting to the point where everyday life does not constantly feel like a financial emergency.
Your Step 8 Goal
Start working toward 6–12 months of essential expenses in your main emergency fund.
At the same time, begin increasing the savings buckets that matter most to your household.
Do not worry about filling every bucket immediately.
Pick the important ones.
Automate what you can.
Keep adding to them every paycheck.
Because eventually, the goal is not just to survive an emergency.
It is to be prepared for one.
Your Turn
If you could fully fund ONE savings bucket right now,
which one would make you feel the most secure?
Car repairs? House repairs? Pets? Holidays? Medical expenses?
Drop yours in the comments.
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