Saving up money for emergencies is a great first step in building a solid financial foundation. When saving up money for your emergency fund, cash is great, but there are other financial assets which might make sense to consider having as well.
In this post, you’ll learn how to create the ultimate emergency fund, and learn how you can save more money over time to improve your financial situation.
Saving up an emergency fund is the first step in becoming financially successful. Having money in the bank will help you sleep better at night knowing you can pay your bills.
Many financial experts recommend saving and having at least $1,000 in the bank.
While $1,000 is a great starting point, I believe this is just a small baby step towards creating the ultimate emergency fund for you and your family.
The ultimate emergency fund I’m going to describe is a little bit out there, and you might think I’m crazy.
However, the probability of an emergency could be higher than you expect (and by preparing for the unexpected, you can prepare to weather any storm).
In this post, I’ll be describing what I believe to be the ultimate emergency fund, talk about steps you can take to build this emergency fund, and discuss other considerations to think about when building this fund.
Disclaimer: I’m not an investment adviser, a lawyer, or a certified financial planner. With all investments and things regarding money, it’s crucial you do your due diligence, realize that your financial situation is unique to you, and do the necessary research and learning before taking action. Personal finance is personal. While I believe that the assets I’m going to discuss are good to own and have, they may not make sense in your personal situation.
Why You Need an Emergency Fund
Before getting into the three assets which make sense to own for your emergency fund, I first want to share with you why it’s critical to have an emergency fund.
An emergency fund is just that: money saved for emergencies.
If you lose your job, could you still pay your bills?
If your roof gets damaged, or your car gets wrecked, could you afford to pay for the damages?
What would happen if you unexpectedly had to pay for a medical complication? Could you do it?
These are common situations where having an emergency fund is incredibly important. By having an emergency fund, you could successfully navigate these situations without getting into debt or other financial troubles.
In addition to these situations, there are a few other emergencies which might apply.
What if you have to leave the country because of a tyrannical government?
In the United States, this might seem like an absurdity, but in other parts of the world, things like this happen all the time.
Likewise, what if favorite bank goes bankrupt or closes down? How safe is your cash then?
I don’t have the answers to all of these situations, but want to get you thinking about the importance of an emergency fund, and also think about how this extends to unlikely situations.
The Three Assets Necessary for Your Ultimate Emergency Fund
Now that you understand the importance of building an emergency fund, let’s get into the meat of the article and discuss the three assets for your ultimate emergency fund.
After you’ve taken your first actions towards becoming financially successful, and have $1,000 saved up in the bank, you can start to think about creating your ultimate emergency fund.
Having $1,000 in the bank is necessary to break the cycle of living paycheck to paycheck, and will provide a solid base for future savings.
After getting this cash stash saved up, the next steps are to start investing for the future, and to work on solidifying your present situation.
Most personal finance experts recommend having an emergency fund which could cover 3-6 months of expenses.
If you spend $3,000 a month, then 6 months of expenses would mean you have $18,000 saved up for emergencies.
6 months of expenses in your emergency fund is a great start, but I’ve found having more than 6 months of expenses saved provides me with comfort.
This level of savings should depend on your job, your level of expenses, and your comfort with having money in the bank.
For your emergency fund, there are three assets which I believe will provide an amazing safety net for your financial situation are:
- Cash
- Precious Metals
- Cryptocurrency
Let’s talk about each of these assets in detail.
Why You Should Hold Cash in Your Emergency Fund
Holding cash in your emergency fund is a pretty obvious suggestion.
You probably pay your bills with whatever currency is the main currency in your country, so having a checking or savings account with this currency certainly makes sense.
Depending on your level of comfort with different accounts, your cash can be held in a variety of ways.
I’ve already mentioned checking accounts, and savings accounts, but if you want to get a higher rate of return, you could opt for short term Treasury Bills or open up a high yield savings account.
Some people also will put cash in a Certificate of Deposit, but I’m not a huge fan of those as there can be restrictions on when you can access your money.
Cash is king, and by having a large cash position, you should be able to weather most financial storms.
However, with recent decisions by the European Central Bank (to cut interest rates further and start quantitative easing), and other central banks, the growth on your money in a traditional bank might not make sense going forward.
Before discussing the other two assets to own in your emergency fund, I want to touch on the absurdity of negative interest rates, and hopefully spark some new thoughts regarding cash flows.
On The Absurdity of Negative Interest Rates
In Europe, the overnight interest rate is -0.5%. What does this mean?
If I lend you $100, I have to pay you 0.5% for you borrowing my money.
On the face of this, why would I ever lend you anything?
For thousands of years, the purpose of lending and banking was that if I need a loan, then the lender is doing a service and taking on risk.
By taking on this risk, the borrower would pay an interest rate which would compensate the lender for lending out money.
Now, with negative interest rates in certain parts of the world, you have a completely distorted lending situation: lenders are quite literally losing money by lending (and taking on the risk of default from the borrower!)
One of the most mentioned arguments against precious metals and cryptocurrencies is how they don’t pay a dividend and do not have any cash flow.
Well, when banks are paying out 0%, or even charging you interest to hold cash in a checking or savings account, then you aren’t getting any cash flow for your savings anyway!
This is where it might make sense to consider these other two assets.
Why You Should Have Precious Metals in Case of Emergency Fund
Gold and silver, also known as precious metals, have been money for 6,000 years.
For a number of reasons, these shiny metals have stood the test of time, and have been coveted by different civilizations throughout different time periods all over the world.
Gold and silver satisfy a number of the essential qualities of money:
- Proven Medium of Exchange
- Unit of Account
- Portable
- Divisible
- Interchangeable
- Durable
- Private
- Default Proof
- Naturally Limited in Supply
- Millennial Long Stores of Value
You might think gold and silver are only things your grandma and grandpa own, but these assets have a position in your ultimate emergency fund.
If you need to flee the country, or need to protect your wealth from a rapidly depreciating currency, having physical assets is very important.
5 ounces of gold is currently worth over $7,500, and could easily fit in your pocket.
With the ability to concentrate your wealth into something physical, valuable and portable, this seems to make sense for an emergency.
One thing to note here is I’m not talking about buying GLD or SLV, ETFs which supposedly are backed by physical assets. These ETFs are digital and while could make sense in your investment portfolio, these have no place in your emergency fund.
I’m talking about physically having the physical coins or bars in a safe, hidden location.
There are a number of ways to buy gold and silver.
For me, I’ve purchased from sites such as SD Bullion and Apmex,. There are a ton of different coins and bars you could buy, but to start, I might look at something simple like Sunshine Mint bars, American Eagles or Junk (old quarters, dimes, etc.).
For you, you may not be comfortable buying at this point, but hopefully this sparks a thought into why you might want to consider buying these precious metals for your emergency fund.
Even $1,000 worth of precious metals could go a long way in making sure you stay financially resilient in a financial storm.
Why You Should Consider Cryptocurrencies in Your Emergency Fund
The next asset which might make sense for your emergency fund is cryptocurrencies.
At this point, you might think I’m crazy to even suggest this for your emergency fund.
Again, I’m looking to build the ultimate emergency fund, and if you live in a country with a volatile currency, or may need to flee your country, having a digital asset which isn’t tied to one specific currency may make sense.
Here, I’m not suggesting you go all in on one coin. What I’m saying here is it might make sense to allocate a little bit of your money into some of the bigger coins, such as Bitcoin, Litecoin, or Ethereum.
As with precious metals, even with $1,000 in something other than your home currency could be the difference between getting wiped out and having money in a crisis.
For buying cryptocurrency, you can use sites such as Coinbase.
One thing to note here is some governments have been cracking down on cryptocurrencies. While I don’t know what will happen in the future, this is definitely something to consider when thinking about buying these different assets.
At the same time, why should the government be afraid of something, and why should that stop different people from buying these assets?
I’m not sure, but with these three assets, you have the possibility to create an amazing emergency fund.
Now, let’s switch gears a little.
In the next section, I’m going to share with with 13 tips to save money to build your emergency fund.
13 Tips for Saving Up Money to Build Your Emergency Fund
There are a number of ways to save money each and every day.
Below are thirteen points you can look to implement in your life to save more money:
- Destroy your Debt
- Meal Prep and Eating in
- Buy Last Year’s Model
- Coupon at the Grocery Store
- Impose Self Spending Limits
- Planning Ahead for Vacations
- DIY Projects
- Using the Library
- Unsubscribe From Subscriptions
- Practice Smart Banking
- Use What is Needed
- Take Public Transportation
- Take Advantage of Offers
Essentially, if you want to save money, you have to start living intentionally and being conscious of your spending.
One recommendation I have for everyone with regards to spending is to think about what isn’t necessary and cut it.
If you are doing something which doesn’t bring you joy, then maybe it’s time to stop spending money on that thing!
For me, that’s how I decide how to spend my money. If it brings me enjoyment, I won’t hesitate to spend money. At the same time, if the product or service won’t bring me enjoyment, I won’t buy it.
Saving money might seem like a tough goal, but I know you can make smart financial decisions over time and get there.
Here are some other articles which can help you with learn about saving more money:
- 9 Money Saving Tips to Help You Live Frugally
- Increase Savings Fast by Reducing These 3 Big Expenses
- 9 Ways to Save Thousands of Dollars Every Year
- Personal Finance Blogs Saving Money Article Feed
Start Building Your Ultimate Emergency Fund Today
Getting a solid financial foundation in place is crucial for taking risks and becoming wealthy. A strong emergency fund is part of this solid financial foundation, and with this article, you now have some great background on what assets to own for your emergency fund.
Now, it’s your turn to start making changes in your life.
With a strong emergency fund, you will have a create foundation to start building your dream life.
Hopefully this article has given you some good food for thought regarding different ways to construct an emergency fund.
You may think my ideas in this post are out there and a little wacky, but this is my truth and I need to share it. If I don’t share these thoughts with you, I’m not being authentic.
Thanks for reading!