I hustled to build a $20,000 emergency fund in 6 months, and it's one of the best financial decisions I've ever made (2024)

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• After realizing the power of having an emergency savings fund, I set a goal for myself: Save $20,000 in six months.
• I opened a high-yield savings account so I could maximize the returns on my money-saving efforts without paying any fees.
• Ultimately, I achieved my goal by cutting expenses, increasing my income, and setting up weekly automatic transfers into my savings account.
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There are a lot of different ways to get trapped in life, and in many cases, the way out is money.

Maybe you find yourself on a career path you hate, but to do what you really want to do, you'd have to sacrifice your income for a while. It's not uncommon for people in abusive relationships to feel they can't leave because they wouldn't have a place to stay or a way to pay rent. Others land in insurmountable credit card debt after a series of medical bills they couldn't afford.

The solution, in all of these situations, is this: a lump-sum of money that's stashed away but easy to access, otherwise known as an emergency fund.

It took me a while to realize the impact an emergency fund could have on my life. Once I did, I felt pretty behind, so I set an ambitious goal for myself: Build a $20,000 emergency fund, from scratch, in just six months.

Why I chose $20,000

People often wonder how much money they should have in their emergency fund, and there really isn't one right answer. Some people keep $500 in their emergency fund, while others keep $50,000.

A common rule of thumb is to have six months of basic living expenses at your disposal. If you're paying off high-interest debt, (balances with an APR of 10% or higher), it can be smart to stop saving at $1,000 and double-down on your debt before continuing to save. If your income or expenses are unpredictable — for example, if you're a freelancer or you own a rental property that sometimes requires maintenance — saving up nine to 12 months of basic living expenses might be a better idea. By basic living expenses, I mean the bare minimum you would need to survive and continue paying your bills on time.

At first, I decided $10,000 was enough for me. Even though I'm a full-time freelancer, I rent month-to-month and could always move home in the event of a serious emergency.

However, the more I thought about the benefits of an emergency fund, the more I realized I wanted to save more than that. While $10,000 could get me through most emergencies, I also wanted this fund to function as "f*ck-off fund." In other words, I wanted a savings account that didn't just give me peace of mind, but one that also gave me the freedom to change my life if I needed it. I wanted enough money that I could do something like move to another country, attend writers residency program, or sign up for a class that would change my career. So, I doubled my figure and ended up at $20,000.

Setting up my high-yield savings account

I decided to open a high-yield savings account with Ally Bank, which at the time, offered one of the highest interest rates on the market at 2.20% (it has changed since then). Recently, I transferred my emergency savings over to the new Betterment savings account, which offers a 2.44% APY if you join the waitlist for its free checking account.

Both accounts are free and easy to set up online. With Ally, I signed up online and gave them some basic information, like my address and Social Security number, and my account was ready to go in minutes. I then connected the account to my main checking account, which is with First Tech Federal Credit Union, which did take a couple of days to verify.

Automating my savings

I set a pretty ambitious timeline for myself in building my emergency savings fund. In order to save up $20,000 in six months, I would need to save $3,333.34 each month. I rounded up to $3,500 just to be safe.

The key to making sure I stuck to my goal was always paying myself first by setting up automatic deposits into my new savings account. There are a few different ways to automate your savings deposits:

1. Set up a percentage of your paycheck to be direct deposited into your savings account.
2. If you get paychecks from multiple sources, set up one of them to be direct deposited into your savings account.
3. Set up your checking account to automatically transfer money to your savings account once per month, ideally a couple of days after you get paid.

Since I'm a freelancer, I went with the second method. One of my clients at the time had been giving me about $3,000 of work per month, so contacted them and asked them to send payments directly to my new savings account. Then, I set up my checking account to transfer $125 into my savings account every Thursday, right before the weekend, which is usually when I spend the most money.

I had to work overtime in order to achieve this goal. Being a freelancer actually worked to my advantage, as I was able to take on additional clients to increase my income. Picking up side gigs and dropping unnecessary expenses are two great ways to speed up your savings rate temporarily.

I'm still surprised at how much of my stress has been relieved by knowing I won't be worried about money if something terrible happens. It's also given me the courage to take more risks in my career and pursue things I'm passionate about even if they might not pay off. Building an emergency fund is easily one of the best financial decisions I ever made.