We need to talk about emergency funds. How three experts realign their savings strategies


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Emergency funds are out. Solution funds are in.

At least for Delyanne Barros, a lawyer-turned-millionaire money coach who teaches people, especially Latinas, the importance of investing and building wealth.

Saving up an emergency fund has long been a building block of personal finance, and experts recommend that people hold 3 to 12 months of expenses in a liquid, high-yield savings account. But instead of just being for emergencies, Barros wants people to see saving as a solution to every situation.

“I am redefining the term emergency fund. It’s incredibly triggering and fear is rarely a good motivator,” Barros said. “Instead, I call it a solution fund because that’s how I see money. It’s a problem solver. A stress reliever. A convenience provider.”

For example, a savings fund can enable you to get out of a job or life situation that is not conducive to you. It can be the seed of a new business or a side business. It can enable you to take care of your family and friends when they need you.

“Saving is usually associated with something negative. Something goes wrong and you have enough money to right the unexpected wrong,” Barros said. “But I’m trying to turn that on its head. Saving should be seen as something positive.”

This is often easier said than done. Changing the way you think about money can be difficult when you’re living paycheck to paycheck and struggling to save. Barros and other experts recognize that getting to the point on your financial journey where you can save at all is a privilege — let alone having a positive attitude towards saving or money in general.

“It’s a privilege to get to this point,” said K. Kenneth Davis, a financial educator known as The Trans Capitalist. For people who don’t have enough to save, “the name doesn’t change their situation,” he said.

This is especially true for the LGBTQ+ community, whose members are more likely to face financial setbacks and trauma, Davis said. According to a 2019 study by the University of California, Los Angeles, the poverty rate of transgender people in the United States is almost twice that of straight cisgender adults. Poverty rates are even higher among transgender people of color.

Whether you prefer to think of it as an emergency fund or a solution fund, the important thing is to find your best strategy for saving for the unexpected.

Why you should focus on your savings now

It’s always a good time to focus on your goals and find ways to start saving, but it’s especially important now that an economic downturn could be around the corner.

Historical indicators of a recession have been flashing red in recent months, and experts are warning that rising interest rates combined with high inflation could lead to one. The latest inflation data showed that prices were 8.2% higher in September than a year ago – despite the US Federal Reserve’s aggressive rate hikes aiming to slow them down.

Many economists expect the Fed to hike rates again in November to further fight inflation, which could ultimately lead to higher unemployment and fewer job opportunities. The Fed forecasts that the unemployment rate could hit as high as 4.4% and stay high into 2025. For comparison, a high unemployment rate could put nearly 1.2 million Americans out of work.

One of the best things you can do to prepare for an unpredictable future is to set up an emergency or resolution fund – ideally consisting of a few months’ expenses, if possible. If that feels unattainable, start small. Financial advisors say it’s important to set aside something regularly — even if it’s just a few dollars a week. Anything is better than nothing.

Experts recommend keeping your money in a high-yield savings account for easy access when you need it. It also pays to keep your savings in the right place. Interest rates on high-yield savings accounts are the highest in years, with some reaching as high as 3% APY.

Expert tips for saving

Reflect on yourself and change your money script

Before creating a budget or setting financial goals, you should think about how you think about money. You may have beliefs about money that are completely unfamiliar to you — what experts call money scripts.

A negative money script can affect your financial situation and feelings, affect your actions and ultimately the results you achieve. It can create anxiety and fear-based limitations about money that can send you into a vicious cycle, Davis said.

Spending time unlearning any negative thinking is crucial, he said, to achieving your financial goals. The first step is to get to know yourself better, and of course that takes time.

“Money and psychology are intertwined, and it’s hard to untangle them,” Davis said.

Consider journaling your relationship with money or speaking to a therapist to ease your anxiety. It might help you identify negative money habits and the thoughts that create them.

“Go deeper and get a therapist,” Davis said.

Start with a budget and goals

The foundation of your emergency fund is the ability to pay for your necessary expenses. So the first step is to create a budget, figure out what expenses are essential, and separate your needs from your wants. Think of the rental versus a recurring subscription; You have to pay your rent, but you don’t need Netflix.

“While things are essential to living a balanced life, they aren’t needed and can help you reach your three to six month savings goal faster,” said Krystal Todd, CPA and popular personal finance figure on TikTok.

Go to the bare minimum of what you spend, then calculate how long it would take you to save that amount based on how much money you’re currently spending. Barros recommends multiplying it by three to set your first savings goal. Barros said the next step is to add up the costs of what you want and keep that separate from your necessary expenses. Some desires, like your gym membership, may become recurring while others are one-time expenses.

Take baby steps

After setting a budget and goals, it’s time to start saving. There are two ways to do this: cut expenses for a few months until your fund is set up, or find ways to increase your income streams. Consider working freelance or starting a side job.

“One of my favorite recommendations is to reach out to your favorite creators and apply to be a virtual assistant,” Barros said. “Another way to make extra money is by house or dog sitting. These are always in high demand and pretty much recession proof.”

If you don’t have an emergency fund, try to save enough to cover at least three to six months’ expenses. At a difficult time in your life, it’s okay to slowly but surely work toward a humble goal that will help you reach the other side on solid foundations. Davis recommends trying to save $1 a week and building that amount over time — to $5 or $10 a week if possible.

“If you can set aside $100 a month, that’s a good start,” he said. “Start with bite-sized pieces.”

An emergency fund is a solid place to start, but you may need more cushion. Their money doesn’t stretch as far as it used to, due to rising costs, stagnant wages and a looming recession. If you already have a well-stocked emergency fund, consider increasing your contributions to stay ahead of the curve.

“The goal is to change our way of thinking from ‘everyday’ to more forward-thinking,” Todd said. “If we want to be isolated like most successful people and businesses, we need to move accordingly by actively managing our finances.”

Automate your savings

Next you want to automate your savings. This is how you make sure you meet your savings goal. Set up a recurring transfer from your checking account to your savings the same day you get paid. Depending on your bank, you may be able to set up your transfers as weekly, biweekly, or monthly.

“Over time, you will get used to these transfers and adjust your spending accordingly,” Barros said. And when it’s time to spend your savings, don’t feel guilty. That’s what it’s for.

“You saved that money so you can use it,” Barros said. “Money is meant to provide solutions, and it doesn’t mean you’ve failed in any way.”