If you’ve ever asked yourself, “how do I save for an emergency fund?” This blog post will answer that question. I spend about half the year living in Medellin, Colombia. And the other half of the year traveling to places such as south east Asia. One day during the Corona pandemic, I’m sitting at my lap top logged into Facebook and I see a post from a digital nomad in a Facebook group for foreigners who live in Colombia.

If you’re wondering or uncertain about what’s a digital nomad, a digital nomad is someone who works remotely and usually travels to different countries. Normally, they’re freelancers. But digital nomads can also be entrepreneurs. 

In this digital nomad’s Facebook post, he writes, “I’m in a very desperate situation. I’m here  stranded in Medellin, Colombia. I’m staying at an Air BNB and I’ve almost exhausted all of my savings. I missed the last flight back to the States and now the borders are closed in Colombia. I  have very little money for food and only enough money to stay a couple more days at this Air BNB. Because of the pandemic I’m having trouble finding work online. I do not have anyone in the States who I can depend on to send me money. Can someone please help me?”

One person in the Facebook group advised him to set-up a GoFundMe account asking for people to donate money to help him buy food and pay for his Air BNB until the borders re-opened.

Fortunately for this digital nomad, a couple days after his Facebook post, the U.S. government arranged several humanitarian flights back to the U.S. And as I understand, if you were unable to pay for your plane ticket because you did not have the money, the US government would still let you fly back to the States on the humanitarian flight, and they’d send you a bill for the plane ticket.

If this digital nomad had saved at least 6 months of living expenses, he would not have had to depend on the government, friends, family members or complete strangers in a Facebook group to bail him out.

Some of the personal finance gurus call this type of fund an emergency fund. Others call it a rainy day fund. I call it my apocalyptic fund.

Although I use the term “apocalyptic fund” this fund isn’t only for use during a pandemic, a catastrophic collision of an asteroid with our planet or even an invasion by hostile aliens.  The money you have put away in your apocalyptic fund can also be used if your  car breaks down or you have an emergency repair needed at home.

How much should you have in your emergency fund? This question is very important when learning how to save for an emergency fund. Enough to cover at least six months of your expenses. In order to figure out how much is enough for six months, for the next 30 days write down every purchase or expense you have. These expenses may include – but are not limited to: rent or mortgage payment, utilities, car note, food and entertainment.

You can calculate your expenses using a spreadsheet. And if you feel more comfortable using a pen, writing pad and calculator to calculate you monthly expenses, go right ahead and use them. You can also use a financial management software platform such as Mint.com or YouNeedABudget.

Once you have determined how much you spend per month, multiply that amount by 6. Then you’ll know the amount of money you need to save for your apocalyptic fund. Let’s say, for example, your monthly expense are $1,800 a month. If you multiply $1,800 a month times 6 that’s $10,800.

Once you have determined, the amount you need in your apocalyptic fund, you need to set a goal to save itWhenever I set goals, I divide goals into two categories. The first category of goals is called results-goal. For example, the results-goal that I am seeking may be to save $10,800. The second category of goals is called actions-goal. If the results-goal that I’m seeking is to save $10,800, my actions-goal may be to save $900 every month for 12 months. 12 times $900 is $10,800. Or my actions-goal may be to save $600 every month for 18 months. 18 times $600 is $10,800.

My results-goal is the outcome I want to have in the future. My actions-goal is the strategy or step-by-step process that will enable me to learn how to save for an emergency fund and reach my results-goal.

When setting up your apocalyptic fund, there are several things that you’ll need to keep in mind. One, the fund should be in a liquid account such as an online high yield savings account or money market account. This will give you a convenient fund to save your money while giving you easy access to it in the case of an emergency. If you have your apocalyptic fund tied up in stocks, bonds precious metals, or real estate, it may not be as easy to get access to your money in the event of an emergency or an apocalypse.

If you’re wondering what’s the difference between an online high yield savings account and a money market account, for our purposes there really isn’t much of a difference. Both pay higher interests than standard savings accounts. They’reboth backed by the FDIC or the Federal Deposit Insurance Corporation. Which means you have no risk of losing your money since your deposits are backed by the full faith and credit of the United States government.

The main difference between the two is that money market accounts usually have check writing features where high-yield savings accounts normally do not. Money market accounts also typically require a high minimum balance to get the best APY or annual percentage yield – which may be a major consideration if you’rejust beginning to save and presently you  don’t have much money to open your apocalyptic fund.

A second thing you’ll want to take into account is that although you want easy access to your money, you don’t want the access to be too easy where you’ll be tempted to spend it buying some junk the next time you’re at a shopping mall or browsing Amazon.com. So put your apocalyptic funds in an account that is separate from your primary checking account.That’s why opening an online high yield savings account or a money market account at a financial institution other than where you have your primary checking account is an excellent idea.

A third consideration when setting up an apocalyptic fund:  Hopefully, you’ll never or rarely have to use the money in your apocalyptic fund. But just in case, you’ll still want your account not to have any penalties for withdrawals. And you’ll also want it to be in an interest bearing account.

If after hearing what happened to the digital nomad in Medellin, Colombia, isn’t enough to convince you to open up your own apocalyptic fund, then it’s time for me to tell you what may happen to you if you don’t have one.

You may have to borrow from your retirement fund for an emergency – which may cause you to incur penalties or early withdrawal fees. If you don’t have an apocalyptic fund, you may have to borrow money using your credit cards whichwill force you to accumulate more debt and probably incur excessive interest rates.  Without an apocalyptic fund if you have an emergency expense that you have to pay, this may cause you to be late on your rent or mortgage payment – which will cause you to incur late fees. Without an apocalyptic fund, you may find yourself unable to pay for a prescription for yourself or a loved one during a medical emergency.

And in the absolute worse case scenario, without an apocalyptic fund, you may find yourself without money to buy food or water during a . . .  .  Alien invasion 

So here the action-actions that you’ll now need to take in order to create your Apocalyptic fund:

  1. Determine your monthly budget
  2. Multiply your monthly budget by 6 to determine the amount of money or results-goal you’ll need to accomplish for your apocalyptic fund
  3. After you have determined the amount of money or results-goal for your apocalyptic fund, divide that amount by 6, 12 or 18 to determine the action-goals amount you’ll need to save every month to reach your apocalyptic fund results-goal.
  4. Set-up an online high yield savings account or money market account for your apocalyptic fund. Be sure that you create your apocalyptic fund with a bank or financial institution that is separate from where you have your primary checking account and set-up automatic transfers from your primary checking account to fund your apocalyptic fund.

If you enjoyed this blog post on how to save for an emergency fund, then click here to check out an Easy Way To Save Money.

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