1 Million Dollars

Tuesday, July 26, 2011

How to Create a Emergency Fund and Why YOU need one

A emergency fund is a hard thing to build in general, but for students it is harder then the average. Many students are living on student loans, some that charge interest and financial aid penalizes you for any assets, beside money in retirement accounts, a car and a house.
Students often have very little time between school, studying, extra-curricular and work needed to survive and pay for school. But often students need an emergency fund, just like anyone else. Unless mom and dad are paying for everyone of your expenses you need an emergency fund. But how much you need depends on where the income is coming from and what your expenses are.
Do you have a car? Then you need money to fix it, if it breaks and that money comes from your emergency fund.
Often the best way for students to create a EF is work like crazy during the summer. But you might be saying, the summer is almost over, what now? You still have a month and there is so many different things you can do. If you have not signed up for mypoints or swagbucks you are loosing money every month. They are the easiest ways I know to get giftcards and it is not like students are never on the computer. You can sign up for swagbucks at the bottom of this blog and start with extra points. Remember the little things add it, a dollar or two here or there will add up to hundreds. Are any friend's parents or parent's friends going out of town and need someone to pet sit? That is money in your pocket and you get some time away from your parents, too. Are there any older people in the neighborhood that need their lawns mowed? Find side hustles and put that income into your saving. That is the most important thing to do.

While you are doing that, are you working at your main job as much as you can, if you have one? Remember you want to best the employee you can, so when you come back for summer and winter break they want to hire you again.

While you are doing all of this, you need to look at your financial aid. Is it grants and scholarships or is student loans? If the aid is student loans, what kind of student loans, subsidized or unsubsidized? Can you get work study? Work study is the best way to work while you are in college. Your employer understands you are in school and that you need time off to study for midterms and finals and the income does not count against financial aid for your next year.

Wow, so much to do and only a month to do it. Does it feel impossible? It is not, just do as much as you can, that is the important part. As you earn the money put as much as you can aside, try for half but every penny you can save matters. Now it is time to open a high yield savings account. If you have $250 and get referred ING Direct will give you $25. Contact me if you need a referral.

If you have support from parents, you probably only need about $1000 as your emergency fund. Once you have that, if you have unsubsidized student loans pay them down. If you do not, open a Roth IRA at ING Direct and leave your extra money there (up to the amount you earned this year or $5000 whichever is lower). You can pull it out, if you need it without a penalty, just don't pull out the interest. That will keep most of your savings from being counted against you for financial aid.


  1. Good for you for pointing out the need for students to have an emergency fund. When I was a student, I considered myself lucky to end the school year with $5 in the bank! I never even thought about putting money into an emergency fund.

  2. Great tips for students! I also liked to work as many hours as possible in the summer -- great way to save!

  3. There are many things you can do to set money aside for an emergency fund. What scheme or trick you are applying, it is most important to have some discipline. Without discipline nothing works!