- Jermaine Bethune, 37, and Christina Colon, 34, each saved a year’s worth of expenses in their emergency funds – over $US50,000 in total.
- They did it by opening separate savings accounts for their goals and making their savings automatic.
- At the same time, they continued saving for other goals, like retirement and the down payment for a home.
- This article is part of a series focused on millennial financial empowerment called Master your Money.
Couple Jermaine Bethune and Christina Colon have big plans.
They’re saving to upgrade from their one-bedroom apartment in Bloomfield, New Jersey to a home in the same area. With a baby on the way, they’re also saving to take time away from work, and for their dream wedding, too. But, several years ago, the couple decided that one goal had to be met first: building up a 12-month emergency fund.
An emergency fund is a separate savings account holding several months’ worth of expenses to provide cash in an emergency and protect you from taking on high-interest debt. Many experts advise three to six-month emergency funds, and that’s where Bethune and Colon started, too. But when they each hit their goals in 2015 after a year of saving, they decided to aim for a bigger 12-month goal – an extra layer of protection inspired by the advice of Ramit Sethi, the author of “I Will Teach You to Be Rich.“
To meet their new goal, Bethune, a 37-year-old cybersecurity engineer, and Colon, a 34-year-old mental health counselor, would have to save $US30,000 and $US22,000, respectively.
“For me, it was just the ability to have less anxiety,” Bethune told Business Insider. He continued, “A lot of the motivation for me was that once I gained the knowledge of how to structure this, I wanted to pay it forward to family members and friends who were having struggles with finances.”
First, they put a number on their goal.
“The fundamental piece is to figure out what you spend monthly,” said Bethune. “If I cut mercilessly all the stuff like Netflix that you don’t really need, what would that take?” He and Colon both calculated their own figures based on their expenses, and set the goal, kicking off their savings journey with whatever they had in the bank from previous years since they started their careers in their 20s.
Living affordably is a big part of their savings strategy, and has allowed them to save aggressively. The couple lives in a modest one-bedroom apartment, spending about $US1,200 in rent each month. Since they own their cars outright, their only other major expense is Colon’s student loans, which total about $US600 per month. With low expenses, they were able to save for other goals on top of their emergency fund.
Then, they opened new accounts exclusively for their savings.
“From there, we did the same thing we’d do for any kind of goal, which was set up a savings account just for the emergency fund,” Bethune said. Both used high-yield savings accounts to help their savings grow over time.
For Colon, this meant approaching saving differently than before. “I had always had one savings account,” she said. “I had this chunk for student loans saved up, I had this chunk to buy a new car, everything was all in there.” But, she quickly found out that lumping everything together wasn’t effective. “When you spread it all out, it’s still kind of far from your goals,” she said. To keep her progress clear, she opened up a new high-yield savings account just for emergency savings.
To save a 12-month emergency fund – alongside their down payment and wedding-savings goal – Colon had to save about half of her salary, plus pick up side work at a private practice to increase her income. She started by deciding to hold off on buying a car and used that money to jumpstart her new savings account. From there, it took two years to save $US22,000.
To build his first six months of savings, Bethune used bonuses and salary increases, ultimately spending five years reaching his $US30,000 goal. Part of the process of saving more meant getting a promotion this past year. “There’s a limit to how much you can save, no matter how hard you work. You also have to focus on continuing to earn more,” he said.
They made their savings automatic.
After deciding how much they needed to save and where the money would go, the couple automated their savings by setting up recurring transfers from their checking accounts to their savings accounts.
A method championed by “I Will Teach You To Be Rich,” sending money automatically to savings and goals, makes for a hands-off approach. “You’re accumulating money by default,” author Sethi writes. Colon found that this strategy made managing money and saving a big chunk of her salary easier.”It’s a lot less stressful and time-consuming if you have these automatic deductions,” Colon said. “Since creating my automatic deductions, I don’t really think about the spending that I do.”
Before automatic deposits, Bethune found it hard to be consistent with his savings goals. “It would be kind of haphazard and I wouldn’t keep up with it,” he said. With automatic deposits, it’s impossible to forget.
They kept saving for their other goals along the way.
For this couple, saving an emergency fund was a balancing act with their other financial goals.
Colon’s priority was saving for retirement. “Growing up, my mum was an educator who had a pension, but my dad was not eligible for that,'” she said. “I don’t want to be working until I’m 75 years old.” She started saving in her office’s 401(k) and doing what she could to get the most money from her employer’s match.
Colon and Bethune also had two collective goals: to save for a wedding and to buy a home. “We’re only 11 miles outside of New York City, so houses are at least $US500,000 to start,” Colon said. They made a savings goal of $US100,000 for a down payment and divided $US30,000 from their existing savings between their joint wedding and down payment savings account. They only have $US32,000 left to save but anticipate using some of their wedding savings to complete their home purchase.
Aside from earning more, Colon and Bethune both credit that automation for their savings success. But automating only does so much – this method requires a lot of time and patience.
“As I saw our account grow, I was like, ‘oh, maybe we could buy a house now,'” Colon said. “But Jermaine was like, ‘No, we don’t have 20% yet, just wait.’ You have to trust the process and be patient,” she said.
- Read more:
- How the American millennial is overcoming debt, the dollar, and the economy they were handed
- How to pay back your student-loan debt, no matter where you start or what type of loans you have
- 6 alternatives to an expensive undergrad degree, and what exactly to do to avoid massive student debt
- Student-loan debt can be overwhelming. BI’s Money Council is here to help, with advice on repayment, tax credits, and active planning so you can achieve your goals
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