Saving money sits in interesting tension for a steward.
There’s a fine line between the wisdom of having a cushion and selfishly stockpiling, one that I continue to wrestle with. Having some savings means you can absorb life surprises or be in a position to help. It’s not just a matter of protecting ourselves but being available. The danger is when saving turns into hoarding, and the number in an account becomes a sense of security rather than a tool. We want to save so we can be free, not so we can be safe from needing anyone.
Flexibility fund
Life has a way of hitting us with surprise expenses at the worst possible time. The car breaks down, the water heater busts, the company cuts your job. When a big surprise comes you have two choices: pay for it with savings or start the borrowing cycle again.
A emergency fund, or flexibility fund, is your emotional and physical buffer against these surprises. The idea here is to save up several months worth of expenses as a buffer against all of the unexpected curveballs life could throw at us. It’s saving with no specific purpose (not a house, a car, a vacation) other than to help you have a cushion should you, your family, or someone in your community fall into a time of need.
Once you have enough to handle the unexpected, a slightly larger cash cushion gives you many other beautiful options - the option to change jobs, start a business, wait for the right buying opportunity on an asset, lower monthly insurance costs, buy things in bulk, and much more.
How much do you need?
The standard advice for an emergency fund is 3-6 months of expenses depending on your life stage, risk tolerance, and job security. If you’re just starting that number is daunting, so let’s break it in steps:
Stage 1: $1,000 Your starter emergency fund. It won’t cover everything, but it’ll handle many small emergencies. Stage 2: One month of expenses Figure out what you need to survive for one month - baseline needs (rent, utilities, food), not wants. Stage 3: Three to six months of expenses This is the gold standard. You can weather job loss, medical issues, multiple emergencies at once.
What about paying down debt? Ah yes. Do both.
Get $1,000 in an emergency fund first, even if you have debt. Because if you don’t have any cushion and an emergency happens, you’re just going to add more debt anyway. Once you have $1,000 saved, throw everything else at the debt. Once the debt is gone, build up the full 3-6 month emergency fund.
Where should you keep it?
Not in checking (too easy to spend), not in the stock market (emergencies don’t wait for stocks to be performing well), not in crypto, but in a dedicated savings account, like a high yield savings account or within a taxable brokerage account under a money market fund. It needs to be quickly available when you need it.
What counts as an emergency?
When you’re staring at your emergency fund and you’re tempted to dip into it, ask yourself if it is unexpected, urgent, and necessary. If the answer to all three is yes, it’s an emergency. Use the fund. If any answer is no, it’s not an emergency. Find another way to pay for it.
Real emergencies are things like job loss, car breakdowns, medical bills, broken AC in summer, burst pipes. Non emergencies are things like vacations, a new iPhone, or really good deal on something you’ve been wanting. Your emergency fund will get used and that’s the whole point. When you use it, you rebuild it. It’s a cycle, not a one-time thing.
The equation for building it
Flexibility = Earning - Spending
You want more margin in your finances? You’ve got two levers: spend less and earn more. Earning more is great but not guaranteed and can take time, most people have more immediate control over expenses.
The percent of your income you save (savings rate) is a critical lever in personal finance, more important than the returns you get on any investments. It can mean the difference between a few short years to financial freedom and a lifetime of slogging it out. For someone making $100k, spending $90k, and saving $10k - they have to work 9 years just to save up one year of expenses. For another person making $100k but spending just $50k and saving $50k - for every year they work, they have covered another full year of expenses.
Conclusion
With a dedicated savings account or a taxable brokerage you can be off to the races, and automatic contributions can cut out the reliance on willpower alone.
While the standard advice is 3-6 months of expenses, we are more so after the freedom and margin to be present and to give. The tension between saving and hoarding is a real ongoing struggle to wrestle with, and it is up to each person to thoughtfully consider what is guiding the desires of their heart.