It’s time to build an emergency fund.


What is an emergency fund? It is a fortress around the most important non-human thing that you have in your life. Your retirement account.


I know, I know. Everyone is trying to convince you that your retirement account isyour emergency fund. You have loans and hardship withdrawals offered in your retirement plan, and now the federal government is seemingly sweetening the deal by offering to let you take the money free of taxes (for now—shhhhhhh) and penalties.


Stop! They are all a trap. Tapping a retirement plan should seem as futile as going back to your car dealership and asking for the payments back on your car. I want you to think about your retirement plan contributions this way – once they are paid they are gone. If you need money, look elsewhere. That retirement took a long, long time to get where it is. You can’t take it away. You can’t end up like half of Americans right now who want to retire, desperately—but can’t.


The problem is that we are living life operationally break-even. We assume that as long as we can pay all our bills, grocery runs and eating out that we are all good. We are operating under the assumption that we will never need new tires, never replace the roof, never fix a broken air conditioner, never take a vacation – heck, never buy Christmas presents.


Or that you or your spouse will never lose a job or business in a pandemic.


The reason I know we are operationally break-even? First of all, I lived that lifestyle in a former life and know it personally. Second of all, the average person pays $1,100 in interest on credit cards every year, and only half of Americans could right now, at this moment get their hands on $400 in an emergency.


The federal government is invested in this way of thinking. Living operationally break-even means you are doing your patriotic duty—living a life in constant stimulation of the economy.


Let’s say you are 45 years old, and between you and your spouse make a combined income of $125,000 per year. That’s a lot of money. Take away just under half of that amount to cover taxes, health insurance, and retirement. Then the rest gets quickly eaten up by the $1,800 mortgage, day care, out of pocket health costs, car payment and lifestyle expenses. Importantly, you have no liquid savings. You and your spouse made important decisions when you started your jobs to save 10 percent for retirement. But there is little money left over to move into a savings account each month. Not even $100.


Imagine if your spouse lost his job and half the income is suddenly gone. You have no liquid savings. Do you sell the house? Let go of the car with the car payment? Sure you are spending a little less but not enough. The stimulus, tax refund and unemployment will get you comfortably through 3 months, but what if this lasts a year?


Do you take a COVID distribution from retirement? Let’s say you need $2,600 per month, so you take out $32,000 to cover your expenses for the next year. Assuming your spouse gets rehired after a year at the same salary, that means you would have to send $1,333 every single month for two years to your retirement to avoid getting taxed. Considering that you were contributing $1,041 previously per month, then you would be putting $300 back every single month. You would have lost over two years of saving for retirement and the opportunity cost of the compounding of money as the stock market rebounds, not to mention locking in significant losses in your account to take out the money.


What if you could make those payments? Then instead you will probably be forced to pay the tax bill which could reach up to 30%, or a payment of $390 per month for two years.


Folks, there is another way.


If you are in the lucky group still employed, please. I beg you. Start an emergency fund. RIGHT NOW. And don’t do it the old way, waiting until the end of the month to see if there is money left over.


I want you to sprint your fingers across your keyboard with haste to open an emergency savings account at a bank that is not your own. Consider Southern Bancorp, an amazing community bank that has a mission to help people build emergency funds, or maybe a high yield savings account like Ally or American Express.


Now, come up with an audacious number. Remember, spending ain’t fun right now because we aren’t going anywhere. Consider $300 or $500 or $600 per month. Basically a big car payment. You can make this work. Now, I want you to take that new account number and routing number to the bank to your HR department, and ask them to directly transfer your audacious number into your new savings account every month.


Come back here with me after you get that done.


Tick. Tock. (Elevator music humming in the background while I anxiously await the news it is done.)




Yay! Balloons, confetti, everything. I officially declare you a saver. Why? Because you set that account up in a place you can’t easily get to it. Because you automated those contributions. Science, research, hard facts tell me you will not change it. If you chose $500, that means that after 2 years, assuming you are in the lucky group still employed during this mess, you will have $12,000. Wow!


Ok, so the money is flowing in, and you have now protected your retirement account. Your future self is beaming down on you in complete gratitude that one day on her own terms she will indeed be able to stop working.


So the question is, how do you protect the emergency fund and make sure it is only spent on emergencies?


Great question. New tires? Not an emergency. If you don’t have the money for them? An emergency. Do you see where I am going with this? Consider opening up another savings account for expenses like new tires, new air conditioner, or your next vacation. Cuz guess what. Those are not emergencies. They are future expenses. Having those piles of cash will keep you from spending your emergency fund on non-emergencies. Protecting your emergency fund means that you will protect your retirement savings.


So, you ask—what is an emergency?


Let me give you an example. A global pandemic that shut down my husband’s business with no more than a week’s notice. That’s an emergency, and, yes, we are dusting off the emergency fund. The retirement account, on the other hand, is sitting safely intact.


Sarah Catherine (SC) Gutierrez is the founder of Aptus Financial. She holds an MPP from Harvard University and the CFP® and CRPS® designations and is the founder and partner of Aptus Financial.

SC is a co-founder of the Save10 movement, aimed at encouraging young women to save 10% for life and retirement, and she runs a blog on money called Ladysplaining Money. Her book, But First Save 10, How One Simple Money Move Will Change Your Life, will be released July 2020.


READ MORE: Retiring on Their Own Terms – The Power of the Save10 Challenge

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