Budgeting – Emergency Funds

One very common piece of advice from personal finance sites, blogs, and books is the need to have an emergency fund. And I think this is especially important for grad students. There are lots of situations over the course of your grad career where whether or not you can take advantage of it will depend on whether you have some extra money available. How much you should set aside will depend on your lifestyle and family situation. Are you traveling a lot for conferences? Do you have a partner and/or kids? If so, is there more than just your income coming in?

For me, I feel most comfortable if my emergency fund is around $2000 – $2500. I find this amount is enough to cover me if I have a paycheck issue (as happened this month) or to cover most conference trip costs of hotel + registration + airfare. Of course this isn’t always the case – my upcoming conference is in Europe and so the airfare is much more than staying within North America. Luckily, I also have a separate savings account that I’ve been able to use to cover the expenses, and that will be replenished (like the emergency fund) when my missed paycheck finally arrives and I get reimbursed after the conference. This fund can also be used to cover unexpected car (or other) repairs, health bills, etc.

Starting up an emergency fund can be really overwhelming – especially if you don’t have any savings to start with. The best way to start, is to look at ways to easily set aside small amounts of money each week or month (how often will depend on you). You can try setting aside all your change into a jar, or think about cutting out one meal out or bought coffee a week (often referred to as the latte factor). If you can save $5 a week, that’s still $260 by the end of the year (assuming no interest) and $10 can become $520. If you ever manage to get extra money you weren’t expecting or planning for, think about setting it aside into your emergency fund until it reaches a level you feel comfortable with.

Think about saving your emergency fund into an account that is not really easy to access (not attached to a debit card). Don’t lock it away to tightly (like a GIC) as you want to be able to access the money within a few days of needing it. A high interest savings account like those offered by ING or PC Financial are good ones to look at. It’s always good if you can at least make some money off of what you’re savings. I’m using ING right now, and it’s been nice to see my account grow at more than a few cents a month. (Shameless self promotion – feel free to use my Orange Key 35525461S1, if you want to sign up.)

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