There’s no getting around it. Financial emergencies are stressful. It could be the loss of a job, a work slowdown because of a pandemic, an unexpected home repair, a medical bill or a car breaking down. Simply dealing with the impacts of these things is stressful enough, let alone the fact that trying to figure out how to pay for them often leads to a cascading financial fallout. The state of chronic stress that results not only makes it hard to make good decisions, it’s also bad for our health. That’s where an emergency fund comes in and why strengthening it as soon as possible will save us money in the long run and is imperative for our overall wellbeing. 

**Important note: The information given here is not meant to be financial advice. I am not a financial advisor. This information is based on 25 years of personal money management experience. There’s no doubt that maintaining an emergency fund at all times has saved us what’s sure to have been tens of thousands of dollars and prevented us from what would have been plenty of sleepless nights. If you have specific questions about your particular situation, I highly recommend contacting a financial advisor. 

Please Note: As an Amazon Associate I earn from qualifying purchases made through some of the links included in this post. You can read my disclosure policy here.

What is an Emergency Fund?

An emergency fund is meant to be cash that you can access quickly if needed. It’s not a nest egg, and it’s not a vehicle for necessarily making money. (Although any interest it’s making while hopefully just sitting there is a welcome addition.) It’s meant to pay for essential household repairs, doctor’s bills, to help cover costs while looking for a new job, or any other “unexpected” expenses that might otherwise have you turning to credit cards or taking out loans. 

You’ll notice that I put unexpected in quotes. That’s because these things are all part of life. Life happens, and we know it’s going to. We may not know what form these emergencies will take, but the fact that they’re going to happen at one point or another is just the way it works. We can plan for them to some extent by having an emergency fund. 

Because this money should be easy, but not too easy, to get to, money market or savings accounts are among the best and most accessible ways to save. That way it’s kept separate from your regular money but can easily be moved over and withdrawn if an emergency comes up. It’s also easy to put the money back when you’re able to do that. 

How Much do You Need in an Emergency Fund?

The general rule of thumb for the amount to have in an emergency fund is enough to cover 3-6 months of expenses. If you’re starting at nothing or if the recent economic downturn has left you with little to no extra money each month, that can seem fairly overwhelming. Remember, 3-6 months is the ideal goal. The reality though is to start where you can. $500 – $1,000 is definitely better than nothing. If it means the difference between being able to pay for a car repair in cash rather than putting it on a high interest credit card, it can mean everything. 

In fact, personal finance expert Rachel Cruze and money guru Dave Ramsey both suggest that if you have debt, start with an emergency fund of $1,000. Once you’ve paid off your debt, you can fully fund your emergency fund. 

Ways to Save

Here are some of the many things that we’ve done over the years to give you some ideas on how to get started. 

1. Determine how much you need and what a reasonable amount of time is that it would take to save for it, then divide by that many months. The result is the amount of money that you need to put away each month to reach your goal.
2. Skip buying coffee out. Invest in a good travel mug (affiliate link), make your coffee at home and take it with you.
3. Take your lunch.
4. Reduce the number of times that you eat out to once or twice a month. 
5. Go through your monthly expenses and find any other seemingly small ways that you can cut costs. It adds up!
6. Treat your contribution to your emergency fund like a regular bill. Create a line item in your budget for it. 
7. Move money into your emergency fund automatically. You may notice it at first, but once you’ve adjusted your spending to only what you have coming in, you won’t miss it. 
8. If you have to use some of the money from your emergency fund, develop a plan right away for paying your fund back. While this doesn’t need to be a cause for stress, it should be one of the first things that you do once you’re out of the emergency situation. 
9. If you have an influx of money such as with a tax refund or for a birthday or Christmas, deposit most of it into your emergency fund. This will help you reach your goal faster. **Pro tip: Be sure and keep out a little for a small treat for yourself. You don’t won’t to feel deprived. 

Bottom Line

As we’ve seen here. Having an emergency fund has everything to do with fostering good health and taking care of yourself. It doesn’t mean being pessimistic and only expecting the worst. It means being realistic and knowing that things are going to happen. Your health and mental wellbeing will thank you if you’re prepared.  

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How do finances fit into a conversation about health and wellness? The answer is, very well! They’re as much a part of the equation as what we eat, what our mental state is and how our body feels. Remember, everything we do is connected to everything else, and while many things have an impact on our overall wellbeing, there are very few that have the far-reaching effects that financial stress or financial wellness do. That’s why we have to think about our finances in holistic terms and why this is such an important topic to cover in the health and wellness space. It’s also why I went to best-selling author, money expert, and speaker Ellen Rogin to find out how shifting our mindset can shift our reality when it comes to financial wellness.  She explains how that happens and shares steps we can take that will move us from financial stress to prosperity and overall wellness.

Note: As an Amazon Associate I earn from qualifying purchases made through some of the links included on this page. You can read my disclosure policy here.

Financial Stress

Before we can look at what financial wellness is, we need to look at what it isn’t. That’s so we can identify what most of us are up against in one way or another. Ellen thinks about financial stress in two ways. She says there’s the tactical or practical part, which might be “if someone loses their job and all of a sudden doesn’t have cash coming in. They don’t have an emergency reserve. Maybe they’ve gotten too far into debt and feel like they’re going down a dangerous path where they don’t see a way out, or maybe they’re fighting with their partner about money. Those things can bring up an incredible amount of stress.” The other way of thinking about it is where we create stress for ourselves that doesn’t always have to do with reality. According to Ellen, “That might be worrying about the future, such as ‘am I going to be okay down the road? What if I lose my job? What if the economy goes bad again? What if the markets go down?’ All of those spiraling fears that we can talk ourselves into. That is insidious.”

If you’re among those who find themselves in either of these categories, you’re certainly not alone. According to a 2017 report by CreditCards.com, 65 percent of Americans say they lie awake at night worrying about money. Thirty eight percent say they lose sleep over health care and insurance bills, 37 percent say retirement savings has them awake at night and 34 percent cite educational expenses, especially millennials (ages 18-26).

So what kind of toll is this taking on our health and overall wellbeing? A tremendous one, both physically and mentally. A study published in Social Science & Medicine, shows “that reporting high financial debt relative to available assets is associated with higher perceived stress and depression, worse self-reported general health, and higher diastolic blood pressure.” We also know that stress causes weight gain, HPA Axis Dysfunction (Adrenal Fatigue), and that not sleeping well is very unhealthy for our bodies and our mind.

As evidence of the mental toll financial stress takes on us, Ellen cites the book Scarcity (Affiliate Link), which found that “when people are in very dire financial straits, when there’s really serious money issues, their IQ actually drops. It’s really hard to get out of a situation when you’re so worried that you can’t even think things through.”

In case you’re thinking that you wouldn’t worry about money if you just had more, think again. That doesn’t seem to insulate you either. Ellen points to studies that show that 20 percent of people with $5-$25 million dollars of net worth say they worry they won’t have enough to last throughout their lifetime. If people that fall into that category are worrying about money, how can anybody else have any hope? That’s where the concept of financial wellness or as Ellen prefers to call it “prosperity” comes in.

“It’s also this idea of having your financial life equate to your values so that you’re really feeling content in your whole life.” – Ellen Rogin

Financial Wellness and Prosperity

Ellen says that “financial wellness equates to contentment.” It may be that you’re feeling secure that you have enough emergency reserves, or that you’re on track for some of your bigger goals like being able to change jobs at some point, starting a business, or that your kids can go to college without running up huge amounts of debt. But she says, “It’s also this idea of having your financial life equate to your values so that you’re really feeling content in your whole life.”

Ellen likes to use the word prosperity because its definition is “the condition of success or thriving.” If you think about someone who has more money than they could ever spend, but their relationships are terrible, or their health is terrible, or their kids have no purpose in life and they’ve become addicted to drugs. It could be argued that’s not prosperity. The other side of that is that we do live in a material world and things cost money, so she says, “It’s creating a balance between what you value most and how you see your money.”

Prosperity on Purpose

How you see your money is the idea that drives Ellen’s concept of “prosperity on purpose.” It means that “people can be much more deliberate in creating prosperity in their lives” by coming up with a picture of what they want their lives to look like in the short-term and the long-term. This then becomes a type of visual financial plan and goes along with Ellen’s strong belief in picturing what you want and the power of our minds to create our reality.

Once you have your goals in mind, it’s time to take action to achieve them. That means saving, investing and those kinds of strategies. In addition, Ellen strongly believes that “generosity is the driver for prosperity, so it’s having purpose behind that. Goals show up in your life much more quickly when there’s someone else benefitting from it in addition to you. If you’re adding value for someone else, if you’re making a difference in some other way, things just happen more quickly for you.” The key to all of this is shifting our mindset around the word prosperity. It’s not just for “wealthy” people. Ellen thinks of it as “Are you happy? Are you contributing? Do you have what you need? Are you reaching your goals?”

Steps to Take Toward Prosperity

To help you achieve all of those things, Ellen offers these tips to get you started toward financial wellness or prosperity.

1. Picture what you really want.We touched on this before, but it’s a strategy that can be used in many different areas of your life, including with your finances.
2. Learn more. Ellen says that “sometimes people are financially stressed because there’s just things they don’t know and understand.” Twice a week do a search for a financial term that you’ve heard and don’t know what it means. Before long, you’ll be feeling much more confident when it comes to financial lingo and concepts.
3. Be a good saver. This sounds simple, but people don’t do it. Ellen reminds us that while it’s best to start as young as possible, it’s also NEVER too late to start. To help with that, set your savings on automatic pilot. If you have a retirement plan at work, have the money taken out of your paycheck. If you’re self-employed, have money taken out automatically from your checking account to go straight into an investment or savings account. For most of us, it’s simply easier if it happens without us having to think about it. Another key to being a good saver is to spend less than you take in. While it’s perfectly fine to have as a goal that you’re going to make more money, you also have to be realistic about where you are right now. Getting your spending under control is that critical first step that will give you at least a little extra each month to put into savings.
4. Set up automatic giving. Start with a percentage that makes sense for you and have money taken out automatically from your checking account and put into another account that’s designated for giving. Ellen believes that giving makes you feel more prosperous and supports the idea that you have more than enough.
5. Develop a meditation practice. Yes, you read that right as a financial planning strategy. As Ellen mentioned before, “When you’re really stressed, and your mind is spinning, it’s hard to make good decisions.”
6. Get some help. Ellen reminds us that we don’t have to do this on our own. Don’t be afraid to ask a financial adviser for help. Chances are, things aren’t as bad as you’ve built them up to be and hearing that from a professional can help to ease your stress. Or, simply get a friend involved. Sometimes you just need to talk things out and gain another set of eyes on a solution that you might not be seeing.
7. Practice gratitude. When you’re stressed about money, take a moment and focus on what you’re grateful for, whether it’s that you have a roof over your head, a job or food on the table. Ellen says that this is a great stress reducer and “energy shifter” around your perceived financial wellbeing.

Resources

There are numerous resources out there around financial planning, but I strongly suggest that you start with Ellen’s book with co-author Lisa Kueng, Picture Your Prosperity: Smart Money Moves to Turn Your Vision Into Reality (Affiliate Link). I’m not recommending the book because I interviewed Ellen, I wanted to interview Ellen because I’ve read the book a couple of times now and go back to it occasionally to give myself reminders. That’s how good it is! It definitely helps to think big picture, while also suggesting practical steps you can take.

To help you develop a spending plan, Ellen recommends apps such as mint.com (free) and You Need a Budget. To help educate yourself about financial terms and language, she suggests Investopedia as a free resource. You can ask questions and search their glossaries, so if there’s a term you don’t know, you should be able to find it there.

Bottom line: Your outlook and your reality surrounding your financial situation impacts your health and your overall wellbeing. When we lose control of our finances, just like with our health, it’s easy to feel like we’re caught in a downward spiral. As we’ve seen here, you can take control and see that a more prosperous and healthier reality is within your reach.

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