In the Greek myth of Sisyphus, he was condemned for eternity to roll a boulder up a hill, just to see it roll right back down.
For those of us trying to build up emergency funds of short-term savings, it can feel like a similar exercise. As soon as you manage to put some cash aside, you have to draw it down for sudden expenses – and then start all over again.
Natalie Smigielski knows the feeling all too well. About a year and a half ago, the 33-year-old from Toronto had scrimped and saved enough to come up with a $5,000 emergency fund.
But then Smigielski was hit with unexpected bills for car repairs, around $2,500. Then she spent a little more on Christmas gifts for friends and relatives. She quickly found her fund was down to a few hundred bucks.
“I had all of this money, and all of a sudden it was almost gone,” says Smigielski, a government employee. “I was like, ‘Wow.’ It made me feel so insecure. What if another emergency happened on top of that?”
It is a common worry. Building an emergency fund was identified as the number-one financial goal of millennial women, according to an exclusive analysis provided to Reuters by Boston-based money managers Fidelity Investments.
It also scored among the top three goals of millennial men, and both genders of Generation X, along with retirement saving and making the right investment choices.
“Since half of Americans say they would have trouble even coming up with $1,000 in an emergency, this was great news to hear,” says Meghan Murphy, director of thought leadership for Fidelity, which polled over 7,000 401(k)-eligible workers.
The best amount to save, according to most planners: At least 3-6 months’ worth of living expenses, which should be sufficient to weather rough financial moments.
And if you spend it? Planners say that is what it is there for.
“Emergencies will absolutely come along, because that’s how life is,” says Murphy. “But once you spend it, as soon as you can, start thinking about replenishing it.”
Here are some tips on how to keep pushing toward your goals:
1. Put a firewall around it
If you keep your emergency fund in your regular checking or savings account, it might be too tempting to use. Create a separate account linked to your other accounts, so you can transfer funds if needed.
That is what Natalie Smigielski did after she emptied out her account and then successfully rebuilt it. She put the funds into a new account not directly tied to her usual debit card, and if she is tempted to make a “fun” purchase – well, she has another dedicated account for that.
“I remember the worth of having an emergency fund available,” she says. “That’s why I don’t like draining it. I don’t want to ruin it again.”
2. Set it on auto
Treat your emergency fund as a monthly bill and automate deductions from your account. That may require giving yourself a painful initial “pay cut,” says Ellen Siegel, a Miami financial planner.
But much like 401(k) savings, if you do not sock the cash away before you even see it, then your emergency fund will likely be dead in the water.
3. Strictly define emergencies
Do not give yourself any wiggle room, urges Fidelity’s Murphy. An unforeseen medical bill or a broken-down car or a sputtering furnace is a legitimate emergency; a sale at Macy’s or the latest smartphone upgrade is not.
Many Americans lack this spending discipline, which is why 62 percent cannot even cover a $500 car bill with cash from their savings or checking accounts, according to a Bankrate survey.
4. Restock with found money
If you are forced to draw down your reserves, use gifts, raises or windfalls to refill the coffers. Now is actually an ideal time of year to do that because of tax refunds, says Denver adviser Kristi Sullivan. The average IRS refund last year was over $2,800, an excellent stepping stone to a fully-stocked emergency fund.