It is true what they say. Money does not bring happiness. Money buys freedom. Freedom to leave a job. Freedom to manage an economic recession. Freedom to take a leave when you feel burned out. Freedom to leave a country. Freedom to own a house. Freedom to leave an abusive relationship.
My daughter, having your own emergency fund should be your top priority. You are buying a part of your freedom with an emergency fund. Read this article that renamed emergency fund to a “f*ck-off” fund, and what it motivated it: physical abuse from a partner and sexual harassment from a boss.
How Much Money Should a “F*ck Off” Fund Contain?
Usually, it is recommended to have saved enough to cover essential expenses for three to six months.
To survive an emergency, frugality is essential. Depending on your risk appetite and your future personal profile, an emergency fund of a young and single-earner will be quite different from that of a single income family with children.
Trust your judgement.
How Should I Build My “F*ck Off” Fund?
N26 has a more in-depth guide, with differences between an emergency fund and a rainy-day fund. The gist of building these funds is:
- Audit your income and expenses for one or a few months. For example, I track our daily expenses with the annual budget sheet from Google.
- Distinguish between essential and non-essential spending (fixed costs – rent, mortgage, insurance, utilities, and variable costs – groceries, entertainment, subscriptions).
- Choose a percentage of your variable costs that you can contribute monthly, first towards a rainy-day fund, and secondly, to an emergency fund. Play around with emergency fund calculators.
What About Debts?
I am not a financial expert. Do your research, assess what works best for you:
option 1) Pay off any high-interest debts first before saving money.
option 2) Save money first to cover any potential emergency for which you would have to borrow money and pay a higher interest rate than you might otherwise accept.
Do not stop until you have this financial safety net. If you need to thrift, work extra hours, decline going out invitations, so be it. It will not be forever.
And if your friends may sneer condescendingly at your frugality, be thankful. You have a golden opportunity to sieve friends in weeds and grains.
Just because your income will be growing, that does not mean expenses should also be increasing. You will enjoy life much more vividly when you know you have strong roots. You do not need to fall prey to lifestyle inflation.
Learn that:
the urge to show off is less strong with people who feel good about themselves. The experimenters found that simply writing a short essay describing a moment when the person did something she or was proud of reduced the demand for platinum cards.
Good Economics for Hard Times: Better Answers to Our Biggest Problems
by Abhijit V. Banerjee, Esther Duflo
Do not chase brands. The world is already far too full of ego. It is more ethical to try to remember the country of fabrication than the brand name of your things (and make future purchases accordingly).
Finally, I also do not want you to become stingy or idolize money for more than it is. Money is just another means to an end, pure and simple. Although, there is nothing pure nor simple when money is involved.