Guest post by Sarah Dunbar ’16
I proudly characterize myself as a nerd, or sometimes when I make a really bad joke, as a huge dork. So don’t be surprised when I tell you I sometimes think of different finance or accounting concepts in terms of fictional archetypes. If the ever-growing student loan debt becomes your arch nemesis and the savings account that earns a small, but steady, rate of return is the reliable sidekick, then the emergency fund would be the superhero that swoops in and saves the day, just in the nick of time.
As college students, we’ve all been in situations where you have just enough cash to get you through until your next pay day or financial aid disbursement (if you haven’t – just wait, it’ll happen). But what happens when you come home to find your cat has eaten your valentine’s day flowers and has to go to the vet? Or one sleepy morning you accidentally knock your coffee all over your laptop? How are you going to pay for these unexpected expenses?
Have no fear, Captain E-Fund is here! (Here’s one of those times I would classify myself as a huge dork for actually publishing this terrible joke.) Who is Captain E-Fund? Day-to-day is known as an emergency fund, a savings account that is separate from your daily usage account. Specifically, should be set aside for unexpected expenses, such as car repairs, medical bills, or other unexpected expenses. Emergency funds are often used for monthly bills if circumstances arise where one would be unable to work and thus be unable to pay their living expenses. Captain E-Fund is unique in that you must build them from the ground up before they can save you from financial stresses. I was not a believer in Captain E-Fund until I found myself in need of their assistance and they weren’t there.
A few years ago I was living in an older, small apartment in NE Portland. It was adorable and vintage, but the rent was getting insane. I decided to move out to Beaverton in order to save money. Moving means lots of out-of-pocket expenses (security deposit + pet deposit + rental truck + first month’s rent + pizza to feed the friends who graciously came to help) which I was ready for, and had budgeted very carefully so that I would just have enough to cover everything until the following week when I would get paid. Unfortunately, my new cat was not very happy with the chaos that is moving. During the day I had kept her in the bathroom so she wouldn’t run out the door. Her reaction – to claw at the door until she had shredded almost every nail down to the quick. That evening, not only was I looking at a $250 bill at the vet’s office, but also whatever it would cost to repair the wooden door at the apartment. So much for budgeting carefully, I should have been preparing months earlier by building my emergency fund.
So, how does one start to build their own financial caped crusader? Here are three steps you can take today:
1. Evaluate your current expenses and come up with a short-term goal. Many sources recommend enough to cover three to six months of living expenses, but being of limited means that can be a difficult task. I recommend starting with an achievable goal of $200 – $500, if you get there, keep building!
2. Set up an automatic payment to a separate savings account. Think of this as just another expense you pay for on a monthly basis, like your phone or internet bill. Already have a tight budget? Start small with $5 a month and build up according to your means.
3. Celebrate your milestones! Get to $50 saved? Find some free (or cheap) and creative ways to celebrate your achievement. Post it on social media and get your friends and family involved. Discuss ways to reach your next goal – a friendly competition is always a good motivator. I’ve already saved $30 on my 5 Dollar Challenge and am looking forward to have my first $50 saved soon!
Unlike the many popular superheroes we have today, your emergency fund probably isn’t going to be made into a sweet Halloween costume. But if you start making these small changes today, you could reach your goal by October 31st!
~ Sarah Dunbar ’16, Fearless Senior
Sarah Dunbar is a senior business student majoring in Accounting. She is a member of Beta Alpha Psi, the Accounting and Finance Honor Society and a Peer Advisor in the School of Business Undergraduate Office.