In a recent article, I suggested a “bank of inconvenience” for one’s emergency fund. I thought I might elaborate a little more on what I meant by that phrase. It’s going “old school” with a part of your money.
In today’s world, the emphasis is on connection and access, 24/7. I’d like you to take a step back and consider having a pot of money that is not linked to anything. No transfers, no apps and no money going out unless you go there in person.
Here is a way to grow and keep your emergency fund in five steps:
- Choose a financial institution (this means bank or credit union) that you may not have a current relationship with. You don’t have to break up with your other bank. This bank might need to be beyond walking distance from your favorite haunts. Hence the term ‘inconvenience’. Note: An online bank would work, if you follow step 3, below.
- Open a savings or money market account. Deposit the least that it takes to open the account, or one month’s rent/mortgage, whichever is possible now. Get your account routing numbers for Step 4.
- Do NOT link this account to any other accounts. Do NOT order checks or a debit card. You may end up collecting $200 this way! Later on…
- Consult your HR or Benefits department about setting up another Direct Deposit account destination. Give them the information from Step 2 and an amount. $5/$50/$500 per pay period is fine to begin with. Sign up! Or if self-employed, argue with yourself and eventually agree to choose a deposit scheme at a different bank. Money only flows one way.
- Watch your funds add up. Not from interest right now-that is not part of the goal. This money is set aside (or sequestered) so that you can have cash on hand for a true emergency (new brakes, trip to a family funeral, stolen cell phone, trip to the ER). It’s ok to use the money, but keep the deposits going. You can get to your own goal for emergency savings ( I usually recommend a minimum of three months income or expenses-whichever is higher, as a first goal). This will also help reduce any reliance on a credit card for this type of expense.
All done and on your way to collecting hundreds, even thousands of dollars for your emergency fund.